Assignment of Benefits: What It Is, and How It Can Affect your Property Insurance Claim
Table of Contents
What is an Assignment of Benefits?
In the context of insured property claims, an assignment of benefits (AOB) is an agreement between you and a contractor in which you give the contractor your right to insurance payments for a specific scope of work . In exchange, the contractor agrees that it will not seek payment from you for that scope of work, except for the amount of any applicable deductible. In other words, you give part of your insurance claim to your contractor, and your contractor agrees not to collect from you for part of its work.
The most important thing to know about an assignment of benefits is that it puts your contractor in control your claim , at least for their scope of work. Losing that control can significantly affect the direction and outcome of your claim, so you should fully understand the implications of an AOB (sometimes called an assignment of claims or AOC) before signing one.
How Does an Assignment of Benefits Work in Practice?
Let’s say you’re an insured homeowner, and Hurricane Ian significantly damaged your roof. Let’s also assume your homeowner’s policy covers that damage. A roofer, after inspecting your roof and reviewing your insurance policy, might conclude that your insurer is probably going to pay for a roof replacement under your insurance policy. The only problem is that it’s early in the recovery process, and your insurer hasn’t yet stated whether it will pay for the roof replacement proposed by your contractor. So if you want your roof replaced now, you would ordinarily agree to pay your roofer for the replacement, and wait in hopes that your insurer reimburses you for the work. This means that if your insurance company refuses to pay or drags out payment, you’re on the hook to your roofer for the cost of the replacement.
As an alternative to agreeing to pay your roofer for the full cost of the work, you could sign an assignment of benefits for the roof replacement. In this scenario, your roofer owns the part of your insurance claim that pertains to the roof replacement. You might have to pay your roofer for the amount of your deductible, but you probably don’t have to pay them for the rest of the cost of the work. And if your insurance company refuses to pay or drags out payment for the roof replacement, it’s your roofer, and not you, who would be on the hook for that shortfall.
So should you sign an AOB? Not necessarily. Read below to understand the pros and cons of an assignment of benefits.
Are There any Downsides to Signing an Assignment of Benefits?
Yes.
You lose control of your claim . This is the most important factor to understand when considering whether to sign an AOB. An AOB is a formal assignment of your legal rights to payment under your insurance contract. Unless you’re able to cancel the AOB, your contractor will have full control over your claim as it relates to their work.
To explain why that control could matter, let’s go back to the roof replacement example. When you signed the AOB, the scope of work you agreed on was to replace the roof. But you’re not a roofing expert, so you don’t know whether the costs charged or the materials used by the roofer in its statement of work are industry appropriate or not. In most cases, they probably are appropriate, and there’s no problem. But if they’re not – if, for instance, the roofer’s prices are unreasonably high – then the insurer may not approve coverage for the replacement. At that point, the roofer could lower its prices so the insurer approves the work, but it doesn’t have to, because it controls the claim . Instead it could hold up work and threaten to sue your insurer unless it approves the work at the originally proposed price. Now the entire project is insnared in litigation, leaving you in a tough spot with your insurer for your other claims and, most importantly, with an old leaky roof.
Misunderstanding the Scope of Work. Another issue that can arise is that you don’t understand the scope of the assignment of benefits. Contractor estimates and scopes of work are often highly technical documents that can be long on detail but short on clarity. Contractors are experts at reading and writing them. You are not. That difference matters because the extent of your assignment of benefits is based on that technical, difficult-to-understand scope of work. This can lead to situations where your understanding of what you’re authorizing the contractor to do is very different from what you’ve actually authorized in the AOB agreement.
In many cases, it’s not necessary . Many contractors will work with you and your insurer to provide a detailed estimate of their work, and will not begin that work until your insurer has approved coverage for it. This arrangement significantly reduces the risk of you being on the hook for uninsured repairs, without creating any of the potential problems that can occur when you give away your rights to your claim.
Do I have to sign an Assignment of Benefits?
No. You are absolutely not required to sign an AOB if you do not want to.
Are There any Benefits to Signing an Assignment of Benefits?
Potentially, but only if you’ve fully vetted your contractor and your claim involves complicated and technical construction issues that you don’t want to deal with.
First, you must do your homework to fully vet your contractor! Do not just take their word for it or be duped by slick ads. Read reviews, understand their certificate of insurance, know where they’re located, and, if possible, ask for and talk to references. If you’ve determined that the contractor is highly competent at the work they do, is fully insured, and has a good reputation with customers, then that reduces the risk that they’ll abuse their rights to your claim.
Second, if your claim involves complicated reconstruction issues, a reputable contractor may be well equipped to handle the claim and move it forward. If you don’t want to deal with the hassle of handling a complicated claim like this, and you know you have a good contractor, one way to get rid of that hassle is an AOB.
Another way to get rid of the hassle is to try Claimly, the all-in-one claims handling tool that get you results but keeps you in control of your claim.
Can my insurance policy restrict the use of AOBs?
Yes, it’s possible that your Florida insurance policy restricts the use of AOBs, but only if all of the following criteria are met:
- When you selected your coverage, your insurer offered you a different policy with the same coverage, only it did not restrict the right to sign an AOB.
- Your insurer made the restricted policy available at a lower cost than the unrestricted policy.
- If the policy completely prohibits AOBs, then it was made available at a lower cost than any policy partially prohibiting AOBs.
- The policy includes on its face the following notice in 18-point uppercase and boldfaced type:
THIS POLICY DOES NOT ALLOW THE UNRESTRICTED ASSIGNMENT OF POST-LOSS INSURANCE BENEFITS. BY SELECTING THIS POLICY, YOU WAIVE YOUR RIGHT TO FREELY ASSIGN OR TRANSFER THE POST-LOSS PROPERTY INSURANCE BENEFITS AVAILABLE UNDER THIS POLICY TO A THIRD PARTY OR TO OTHERWISE FREELY ENTER INTO AN ASSIGNMENT AGREEMENT AS THE TERM IS DEFINED IN SECTION 627.7153 OF THE FLORIDA STATUTES.
627.7153.
Pro Tip : If you have an electronic copy of your complete insurance policy (not just the declaration page), then search for “policy does not allow the unrestricted assignment” or another phrase from the required language above to see if your policy restricts an AOB. If your policy doesn’t contain this required language, it probably doesn’t restrict AOBs.
Do I have any rights or protections concerning Assignments of Benefits?
Yes, you do. Florida recently enacted laws that protect consumers when dealing with an AOB.
Protections in the AOB Contract
To be enforceable, a Assignments of Benefits must meet all of the following requirements:
- Be in writing and executed by and between you and the contractor.
- Contain a provision that allows you to cancel the assignment agreement without a penalty or fee by submitting a written notice of cancellation signed by the you to the assignee:
- at least 30 days after the date work on the property is scheduled to commence if the assignee has not substantially performed, or
- at least 30 days after the execution of the agreement if the agreement does not contain a commencement date and the assignee has not begun substantial work on the property.
- Contain a provision requiring the assignee to provide a copy of the executed assignment agreement to the insurer within 3 business days after the date on which the assignment agreement is executed or the date on which work begins, whichever is earlier.
- Contain a written, itemized, per-unit cost estimate of the services to be performed by the assignee .
- Relate only to work to be performed by the assignee for services to protect, repair, restore, or replace a dwelling or structure or to mitigate against further damage to such property.
- Contain the following notice in 18-point uppercase and boldfaced type:
YOU ARE AGREEING TO GIVE UP CERTAIN RIGHTS YOU HAVE UNDER YOUR INSURANCE POLICY TO A THIRD PARTY, WHICH MAY RESULT IN LITIGATION AGAINST YOUR INSURER. PLEASE READ AND UNDERSTAND THIS DOCUMENT BEFORE SIGNING IT. YOU HAVE THE RIGHT TO CANCEL THIS AGREEMENT WITHOUT PENALTY WITHIN 14 DAYS AFTER THE DATE THIS AGREEMENT IS EXECUTED, AT LEAST 30 DAYS AFTER THE DATE WORK ON THE PROPERTY IS SCHEDULED TO COMMENCE IF THE ASSIGNEE HAS NOT SUBSTANTIALLY PERFORMED, OR AT LEAST 30 DAYS AFTER THE EXECUTION OF THE AGREEMENT IF THE AGREEMENT DOES NOT CONTAIN A COMMENCEMENT DATE AND THE ASSIGNEE HAS NOT BEGUN SUBSTANTIAL WORK ON THE PROPERTY. HOWEVER, YOU ARE OBLIGATED FOR PAYMENT OF ANY CONTRACTED WORK PERFORMED BEFORE THE AGREEMENT IS RESCINDED. THIS AGREEMENT DOES NOT CHANGE YOUR OBLIGATION TO PERFORM THE DUTIES REQUIRED UNDER YOUR PROPERTY INSURANCE POLICY.
- Contain a provision requiring the assignee to indemnify and hold harmless the assignor from all liabilities, damages, losses, and costs, including, but not limited to, attorney fees.
Contractor Duties
Under Florida law, a contractor (or anyone else) receiving rights to a claim under an AOB:
- Must provide you with accurate and up-to-date revised estimates of the scope of work to be performed as supplemental or additional repairs are required.
- Must perform the work in accordance with accepted industry standards.
- May not seek payment from you exceeding the applicable deductible under the policy unless asked the contractor to perform additional work at the your own expense.
- Must, as a condition precedent to filing suit under the policy, and, if required by the insurer, submit to examinations under oath and recorded statements conducted by the insurer or the insurer’s representative that are reasonably necessary, based on the scope of the work and the complexity of the claim, which examinations and recorded statements must be limited to matters related to the services provided, the cost of the services, and the assignment agreement.
- Must, as a condition precedent to filing suit under the policy, and, if required by the insurer, participate in appraisal or other alternative dispute resolution methods in accordance with the terms of the policy.
- If the contractor is making emergency repairs, the assignment of benefits cannot exceed the greater of $3,000 or 1% of your Coverage A limit.
Recommended Posts
Homeowner’s insurance: understanding the a, b, c, ds of property coverages., the aob guide for florida property owners: rights, requirements, and faqs, actual cash value vs. replacement cost: how to calculate your insurance reimbursement.
Brelly’s tools and resources are your secret weapon to getting your insurance claim filed right, moving fast, and paid fully .
What is assignment of benefits, and how does it impact insurers?
What is assignment of benefits, and how does it impact insurers | insurance business america.
Assignment of benefits, widely referred to as AOB, is a contractual agreement signed by a policyholder, which enables a third party to file an insurance claim, make repair decisions, and directly bill an insurer on the policyholder’s behalf.
The Insurance Information Institute (III) describes AOB as “an efficient and customer-friendly way to settle claims.” Having a problem like a water leak in your home is stressful enough without having to negotiate an insurance claim. By signing an AOB, policyholders can leave that claim to the contractor they’ve brought in to fix the issue - in this case, potentially a plumber or a water remediation firm – and assuming that contractor acts in good faith, the repairs and the claim should be sorted without the policyholder losing too much sleep.
AOB – a fraudster’s playground In recent years, AOB has hit the headlines for all the wrong reasons. Loopholes in the way AOB is being used are enabling contractors and restoration companies to abuse the practice by inflating claims costs and charging insurance companies for work that was either unnecessary or simply wasn’t done at all. These fraudsters then keep any extra money for themselves.
Florida-based insurance brokerage, AssuredPartners, shared the following about AOB: “Once you sign an AOB, you lose control of the direction of your claim. The contractor takes control and can submit whatever they like to your insurance company, sometimes billing the company double, even triple the going market rate for their services, and sometimes including work that was never performed.
Read more: New to the insurance industry? Learn these basic terms.
“You don’t see this, and you can’t verify what was done but you have now committed to this contractor. You now have little to no recourse, nor are you able to comparison shop if you’re not satisfied with their work. Even if their work is incomplete, or you are unsatisfied with the end result, they can still claim compensation from the insurance company, which gets deducted from your benefits.”
A number of things could go wrong with AOB. When a vendor assumes control of a claim, that company is still bound by the terms and conditions of the original insurance policy. If a contractor violates any of those terms, the claim could be deemed void, leaving the policyholder out of pocket for a potentially significant loss.
Also, if the contractor files a claim and the insurance company does not agree with the dollar amount requested, under the AOB the contractor can engage in legal action against the insurer without the policyholder’s consent. According to the III, this can lead to: “a state of affairs in which legal fees can dwarf actual damages paid to the policyholder – sometimes tens of thousands of dollars for a single low-damage claim.”
Protecting policyholders from AOB fraud The National Insurance Crime Bureau, whose mission it is to combat insurance fraud, has published a checklist for policyholders – also something that brokers can share with any clients considering AOB – to consider before hiring a contractor:
- Get multiple estimates for any work / repairs that need doing
- Ask for references and check reviews
- Never let a contractor pressure you into hiring them
- Get everything in writing, including the cost of the work, payment schedules, exactly what work will be done, time schedules for that work, guarantees, and so on
- Read the contract in full. If there are any blanks or concerns, do not sign the contract
- Do not pay a contractor in full or sign a completion certificate until the required work is done
- Check all documents that are sent to your insurance carrier, and make sure you understand them
- Work with an insurance broker to ensure you understand insurance policy language and to get help with the claims process
Impact of AOB on the insurance industry Insurers who choose to dispute inflated AOB bills are up against it in the era of plaintiff-friendly court verdicts. If the insurance companies fight in court and lose, they must pay compensation to the plaintiff’s attorneys, but the opposite is not true if the insurers win their case. So, the cost of the legal expense is prohibitive for the insurance company either way, which is why many insurers opt to settle.
Inflated claims and massive volumes of lawsuits have the predictable result of driving up insurance companies’ legal costs – and insurers are forced to pass those costs on to consumers in the form of higher insurance premiums and more restrictive policy terms and conditions.
Related stories:
- What is wind deductible buyback coverage?
- Eight characteristics of a hard insurance market
What is an "Assignment" of an Insurance Claim?
The assignment of an insurance claim is an assignment of a contractual right or benefit. It is when one confers the financial payment or obligation of the insurer to another making them the beneficiary.
Section 317 “Assignment of a Right” found in the Restatement of Contracts Law defines the assignment of a contractual right as follows.
The section reads as follow:
(1) An assignment of a right is a manifestation of the assignor's intention to transfer it by virtue of which the assignor's right to performance by the obligor is extinguished in whole or in part and the assignee acquires a right to such performance. (2) A contractual right can be assigned unless (a) the substitution of a right of the assignee for the right of the assignor would materially change the duty of the obligor, or materially increase the burden or risk imposed on him by his contract, or materially impair his chance of obtaining return performance, or materially reduce its value to him, or (b) the assignment is forbidden by statute or is otherwise inoperative on grounds of public policy, or (c) assignment is validly precluded by contract.
In other words, it is the transfer of one party’s legal relationship within the contract to another.
- Access Your Documents
- Bill of Sale
- Employment Contracts
- LLC Operating Agreement
- Loan Agreement
- Promissory Note
- Advance Directive
- Last Will & Testament
- Living Will
- Power of Attorney
- Small Estate Affidavit
- Eviction Notices
- Lease Agreements
- Purchase Agreements
- Rental Apps
Insurance Assignment Agreement
Create a high quality document online now!
Updated October 30, 2021
An insurance assignment allows a beneficiary (assignor) to transfer all or a portion of the proceeds to someone else (assignee). This is especially common with life insurance when a family does not have the money to pay for the funeral expenses and chooses to assign a portion of the decedent’s life insurance proceeds to cover the funeral costs.
Can be Used for
- Collateral on a loan;
- Transferring benefits;
- Transfer claims; and
- Paying debts related to the policyholder.
Assigning Life Insurance Proceeds
When assigning life insurance proceeds (such as to a funeral home ), the beneficiary will commonly assign the costs for the specific service only (not the entire life insurance amount).
Sample – Insurance Assignment
Download: Adobe PDF , MS Word , OpenDocument
How to Write
I the parties.
(1) Assignment Effective Date. The first day this document makes its assignment conditions and terms active should be established at the beginning of the first article.
(2) Beneficiary. The Insurance Policy Beneficiary will have to be identified for this assignment to function properly. This will be the Party who is designated on the concerned insurance policy as the Recipient of its benefits (i.e. payment). Produce this Beneficiary’s full name and address.
(3) Assuming Party. The Party who shall be entitled to some or all of the beneficiary payout of the concerned insurance policy must be named and his or her mailing address documented.
(4) Insurance Company. The name of the Insurance Company where the policy is held must be presented in its entirety. This must be its legal name including the status suffix it was registered under as an Entity.
II. Assignment Of Insurance Proceeds
(5) Policy Number. Identify the policy number the Insurance Company has assigned to the account where the discussed payments shall originate.
(6) Assigning All Proceeds. The Beneficiary must establish the portion of the payment that will be assigned to the Assuming Party. If this assignment will, however, deliver the entire insurance payment to the Assuming Party then the language of the first checkbox statement should be adopted as the definition to the second article. To arrange for the full dollar amount of the insurance proceeds to be assigned to the Assuming Party, select the first checkbox statement.
(7) Designating A Portion Of Proceeds . As mentioned, the Beneficiary may only need to assign a portion of the insurance proceeds to the Assuming Party. This can be done with a selection of the second checkbox statement available. This definition will need the exact dollar amount to be delivered to the Assuming Party documented where requested.
IV. Additional Terms
(8) Full Terms And Conditions. This assignment must be fully defined before it is signed. Therefore, if there are any specifics that have not been covered thus far then present them as “Additional Terms” in the space provided.
V. Entire Agreement
(9) Beneficiary Signature. The intent of the Beneficiary to release funds from an insurance policy through this assignment must be verifiable. To this end, the Beneficiary must sign this assignment under the direction of an active Notary Public.
(10) Date. Immediately after signing this document, the Beneficiary must document the current date.
(11) Printed Name.
Notary Acknowledgment
(12) Notarization. As mentioned, it is imperative that the Beneficiary’s signature can be verified as an authentic signature. The Notary Public will be able to show the Beneficiary’s identity and signing as verifiable through the notarization process. Thus, only the Notary Public who has completed the notarization process on the provided signature can supply the acknowledgment needed in the final section.
- Assignment of Insurance Proceeds Please select state Alabama Alaska Arizona Arkansas California Colorado Connecticut Delaware Florida Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Louisiana Maine Maryland Massachusetts Michigan Minnesota Mississippi Missouri Montana Nebraska Nevada New Hampshire New Jersey New Mexico New York North Carolina North Dakota Ohio Oklahoma Oregon Pennsylvania Rhode Island South Carolina South Dakota Tennessee Texas Utah Vermont Virginia Washington Washington DC West Virginia Wisconsin Wyoming Create Document
- PDF Word ODT
By using the website, you agree to our use of cookies to analyze website traffic and improve your experience on our website.
New RIA Position Statements! "Adjusters Dictating Restoration Charges" & "Denial of Charges for Cost of Doing Business"
AOBs and Assignments of Insurance Rights
There are a multitude of hardships that Restoration Industry Association members face every day but one issue that is gaining more traction in the restoration industry is “assignment of benefits” (AOB). We talked in depth to attorney Ed Cross, RIA’s Restoration Advocate, and founding Chair of the Association’s Advocacy & Government Affairs (AGA) Committee, about the incredible opportunities AOBs present for the restoration industry — and to gather some tips when signing one.
What Is “Assignment of Benefits?” To put it plainly, assignment of benefits is a transfer of the legal title to a portion of an insurance claim over to a service provider. When someone has a loss on their property and they make a claim using their insurance policy, that claim can be transferred to another party. This allows contractors to control their own destinies and make legal claims directly against insurance companies who fail to pay the fair market value for restoration work, or insist on using standardized price lists as universal pricing. Xactware has repeatedly made clear that its pricing data is not intended to be used as global pricing and that contractors should set their own prices.
Many people do not have the money to restore their buildings after they’ve been damaged by a flood, fire, or other instances, but they need the restoration work done immediately.
“Contractors take an assignment of benefits in order to have security that their bill is going to get paid,” Cross said. “They do this in exchange for the assurance of immediate payment. So, there's an expectation that the insurance company is going to pay the bill.”
A Game of Cat and Mouse According to Cross, many times when the policyholder receives the insurance money, they aren’t interested in paying for anything. This puts the restoration contractor in a bind.
“Sometimes the policyholder will use it to pay off the mortgage on their house,” Cross said. “So now, not only do they have essentially a brand new house, it's also paid for, free and clear, at the expense of the restoration contractor who is not in a position to take back the work.”
Unlike a car being repossessed if you can’t make the payments on it, a restoration contractor isn’t in the position to take back their work. A contractor could file a lien, but that is a long, complex, and expensive process which could one day put a property into foreclosure, but that’s a rare outcome.
To increase the chance that the contractor’s name will appear on an insurance check, contractors in most states may obtain ownership of the portion of the insurance claim they were hired to address. This frequently allows the contractor to step into the shoes of the policyholder and collect directly from the insurance company. If the insurance company does not name the contractor on the check and the insured runs with the money, the contractor may be able to force the insurance company to pay again. Cross has done this many times against major insurance carriers.
Restoration contractors have the resources, the energy, and the wherewithal to pursue this collection and to press the insurance company to pay fair value, whereas a typical policyholder doesn't have the resources, the expertise, or the desire to ensure that the contractor gets paid in full. This can leave the restoration contractors in a rough spot: those needing work will go with whatever the policy will pay, and if it pays too little, who should they go after?
“Many contractors agree to work for the amount of insurance proceeds,” Cross said. “And if the insurance company decides it wants to pay little or nothing, as they often want to do, the contractor gets left holding the bag. It places them in the predicament of trying to decide, do I sue my customer? Or do I try to go after this insurance company?”
Assignments got a bad rap because of an extraordinary law in the State of Florida that encouraged litigation by allowing the holder of an assignment to collect attorney’s fees in a lawsuit against an insurance company, even if there was no wrongdoing by the insurance company. The insurance lobby put an end to that when F.S. 627.7152 was passed. Among other things, it says that the holder of an assignment waives the right to collect money from an insured. It also greatly limited the scenarios when the holder of an assignment could collect attorney’s fees. This effectively eliminated assignments in State of Florida. Cross warns contractors against using assignments in the State of Florida, but points out that the issues there are present nowhere else in the country. Assignments should not be judged by unique circumstances in Florida that ended three years ago.
The States of Texas and Oregon generally refuse to enforce assignments of benefits, but they allow the assignment of a legal claim. Thus, if the insurance company breaches the insurance contract by underpaying on a claim, for example, or commits insurance bad faith, the contractor may be able to take ownership of the legal claim and sue the insurance company directly. But in most other states, contractors can and should seek assignments.
When policyholders either run off with the insurance money or use it to pay something off, (such as their mortgage), with a well-executed AOB you can go back to the insurance company and demand that they pay a second time.
“Ultimately, they write a second check when they're unable to get the policyholder to pay out the money,” Cross said. “And we're often able to do that without filing a lawsuit.”
Unfortunately, the insurance industry does not train adjusters to know that assignments of benefits need to be honored. Adjusters are often dismissive of them and give all the money to the policyholder — which is when things get out of control.
The AGA is out to change all of that. It will be releasing a 50-state Summary of the Law of Assignments regarding the enforceability of assignment of benefits which contractors can use in their communications and negotiations with stubborn insurance companies. At the RIA Convention in Orlando on June 29, 2021, Cross will present the first session of the AGA Academy, which will teach contractors how to prepare, present, and prosecute assignments using RIA’s Summary of the Law of Assignments. The event is rapidly selling out and contractors should sign up now to avoid missing this special opportunity.
Tips for Contractors and AOB’s Cross offers three points that every restoration contractor should take into account when looking to sign an AOB.
The first is that most restorers mistakenly believe that they have an AOB, when in fact, all they have is a direction to pay.
“The typical restoration work authorization says that the policyholder instructs the insurance company to name the contractor on the check and correctly to name the contractor on the check,” Cross said. “Contractors think that's an assignment. It's not an assignment; it is merely a direction to pay.”
An assignment is a transfer of legal title, meaning that ownership of part of the insurance claim is being transferred to the contractor. This puts the contractor in “privity” (a legal relationship) with the insurer that allows the contractor to obtain remedies based on the insurance policy. A direction to pay should be included in an assignment of benefits document. But it is not, in and of itself, an assignment because it does not transfer ownership.
Second is that an assignment should include more than the assignment of “benefits.” It should also include an assignment of the right to go to appraisal. Appraisal is a process under the insurance policy where if a policyholder and an insurance company are unable to agree on the amount of loss, they can submit the matter to independent appraiser, who sets the amount of the loss.
Last, and most important, the assignment should also include an assignment of the right to sue the insurance company for breach of the policy and for insurance bad faith in jurisdictions that recognize this. This is why Cross no longer generates “Assignments of benefits” for his clients; he generates “Assignments of Insurance Rights .” A well-drafted Assignment of Insurance rights includes assignments of benefits, the right to appraisal, and the rights to sue, as well as a direction to pay.
Don’t miss out on the 75 th Diamond Anniversary International Restoration Convention + Industry Expo! Click here to register and find out more!
Back to Top
- Tour the AI Platform
- Request a Demo
- Watch a Demo
- Augmented Intelligence
- Data Engineering
- Machine Learning
- Decision Intelligence
- Explainable AI
- Data Preparation
- Automated Time Series
- No-Code AI Apps
- More Capabilities
- Manufacturing
- Financial Services
- Oil and Gas
- Public Sector
- See All Industries
- Business Analysts
- Data Scientists
- IT Operations
- Software Engineers
- Executives & Analytics Leaders
- Pathfinder Explore our marketplace of AI solution accelerators.
- Together with our support and training, you get unmatched levels of transparency and collaboration for success.
- Documentation
- Success Stories Learn how our customers use DataRobot to increase their productivity and efficiency
- Resource Library
- Trusted AI 101
- AI + ML in 20 Minutes
- DataRobot University
- Product Documentation
- Partners Overview
- Cloud Alliance
- Services Partners
- Technology Alliances
- Partner Portal
- DataRobot Story DataRobot was founded in 2012 to democratize access to AI. Today, DataRobot is the AI leader, delivering a unified platform for all users, all data types, and all environments to accelerate delivery of AI to production for every organization.
- See the latest news and media
- See Newsroom
- Our Culture
- Leadership Team
- Board of Directors
- AI Across Industries
Outcome-Based Claims Assignment: The “New Grail” of Insurance
If you’re a commercial insurer, how do you evaluate your claims personnel? How do those evaluations impact your decisions on how to deploy individual adjusters?
Typically, adjusters are assigned by pre-determined categories such as the line of business, size of the account, or region. Within these categories, adjuster performance is measured by various metrics, including closed-claims ratio, average time to settlement, accuracy of loss development projections, and others.
This amounts to what might be called “input-based” claims management, where a claim is routed through a predetermined path based on limited information in the initial notice of loss. This approach has worked well enough to date, given the complexity of commercial claims management and the limitations–until now–on insurers’ ability to analyze loss development in real-time.
Artificial intelligence and machine learning are poised to turn claims management on its head, however, by allowing commercial insurers to implement “outcome-based” adjuster assignment –an approach that breaks down functional silos to identify the adjuster best prepared to reach an optimum settlement on an individual claim.
Claim Dynamics
To understand the value of outcome-based adjusting, it is important to remember that every claim has a unique dynamic of interacting variables that drive its loss development. These loss characteristics don’t neatly fall into our predetermined claims management categories.
For example, a worker’s comp claim involving a vehicle collision may have more in common with an auto claim than the typical worker’s comp claim. A seemingly small property loss can lead to a disproportionately large income loss if an otherwise skilled property adjuster is unaccustomed to the type of operation involved.
Similarly, the right person for managing a claim might not be where you would expect within a traditional claims operation. An adjuster specializing in artisan contractors may be at a loss to adjust an intellectual property claim over a design feature. In that case, how would the company know that the right adjuster for that type of claim is currently handling retail accounts?
An outcome-based assignment is based on a systematic and highly granular analysis of closed claims to determine how each adjuster has performed on each individual coverage subsegment. For comparable claims, each adjuster is measured for expense control, accuracy of case reserves, average claim cost, audit outcomes, customer satisfaction / NPS, and other metrics. In addition, AI and machine learning will identify cost factors and correlations that would typically go undetected.
From this, individual adjusters can be scored for their particular aptitudes, and the highest-scoring available adjuster for a specific type of claim can be assigned to such a claim. The most appropriate adjuster for a claim is not necessarily your best adjuster overall, or even the best for that line of business or class of risk, but is the best choice given the characteristics of the loss and the current demands on your claims team.
Optimizing Outcomes
The aspiration here is not new, but the capability is.
For years, commercial claims managers have sought to optimize adjuster assignments by personally deviating from organizational structure and assigning an adjuster to a claim, typically on the basis of intuitive insight gained from experience.
Today, adjusting competence can be determined on a very granular level and implemented consistently across the entire claims operation. Why make exceptions when you can make an optimal assignment the rule?
General Manager of Insurance, DataRobot
As an insurance industry executive and management consultant, Neal has served as an analytics thought leader and driver of innovation for the last 25 years. Recently, he was the VP of Predictive Analytics at Zurich North America, focusing on bringing the latest advances in predictive analytics to insurance product development.
We will contact you shortly
We’re almost there! These are the next steps:
- Look out for an email from DataRobot with a subject line: Your Subscription Confirmation.
- Click the confirmation link to approve your consent.
- Done! You have now opted to receive communications about DataRobot’s products and services.
Didn’t receive the email? Please make sure to check your spam or junk folders.
Latest posts
Make Better Data-Driven Decisions with DataRobot AI Platform Single-Tenant SaaS on Microsoft Azure
Belong @ datarobot: celebrating women's history month with datarobot ai legends, bringing more ai to snowflake, the data cloud, related posts.
Discover insights on the specific conditions that make machine learning effective in certain financial applications, such as high-frequency trading. Read more.
In this article, we’ll first take a closer look at the concept of Real Estate Data Intelligence and the potential of AI to become a game changer in this niche.
In this blog post we’ll explore how Mindshare, a global media agency network, has leveraged data science tools to create a fast and reliable decision-making engine. Read more.
You’ve just successfully subscribed
Thanks! Check your inbox to confirm your subscription.
Consumer Services
Assignment of benefits (aob).
Have you heard of the term assignment of benefits ? Do you know how it impacts you? An AOB is an agreement that, once signed, transfers the insurance claims rights or benefits of your insurance policy to a third party.
An AOB gives the third party authority to file a claim, make repair decisions and collect insurance payments without your involvement.
Review the resources below to better understand how transferring your insurance claims rights can impact you and your family.
Legislative Updates
Recent legislative changes prohibit a policyholder from assigning any post-loss benefits of a residential or commercial property insurance contract issued or renewed on or after January 1, 2023. Therefore, Assignment of Benefit agreements may not be established for claims made under contracts subject to this new law.
These legislative changes are part of Senate Bill 2-A which was passed on December 14, 2022, during the Legislative Special Session and signed by Governor DeSantis on December 16, 2022.
- EDUCATIONAL MATERIALS
What is an assignment of benefits?
An AOB is an agreement that transfers the insurance claims rights or benefits of the policy to a third party. An AOB gives the third party authority to file a claim, make repair decisions, and collect insurance payments without the involvement of the homeowner. AOBs have been used with life and health insurance policies for many years. However, AOBs are now being commonly used in homeowners’ insurance claims by restoration companies and contractors. Signing an AOB can be helpful with navigating the claims process, but if misused, it can lead to harmful consequences for the homeowner.
For example, you have a pipe leak in your home that causes water damage. If you call a restoration company to make repairs and sign an AOB that transfers your insurance rights to the company, the company can file a claim on your behalf and be paid directly.
What information must be included in an assignment of benefits?
The AOB must contain a written, itemized, per-unit cost estimate of the services to be performed by the third-party assignee and it must only relate to the work to be performed for services to protect, repair, restore, or replace a dwelling or structure or to mitigate against further damage to such property.
The AOB must contain a notification in 18-point, uppercase, boldfaced font that advises you that you are giving up certain rights under your insurance policy to a third party. The notification must also include the rescission terms.
The AOB must contain a provision that requires the third-party assignee to indemnify and hold you harmless from all liabilities, damages, losses, and costs (including attorney fees) if the policy prohibits an AOB. The execution of the AOB constitutes a waiver by the third-party assignee and its subcontractors of claims against you for payment arising from the AOB. The third-party assignee and its subcontractors may not collect, or attempt to collect money from you, maintain any action of law against you, file a lien against your property or report you to a credit reporting agency.
The AOB prohibits the third-party assignee from seeking payment from you in any amount in excess of the applicable policy deductible unless you have agreed to have additional work performed at your own expense.
The AOB cannot assign the right to recover attorney fees to the third-party assignee. In a suit related to an assignment agreement for claims arising under a residential or commercial property damage, the right to recover attorney fees stays with the assignor.
Florida law prohibits a third-party assignee from including the following charges/fees in an AOB:
- A penalty or fee for rescission of the AOB during the timeframes outlined in the AOB.
- A check or mortgage processing fee.
- A penalty or fee for cancellation of the AOB.
- An administrative fee.
If you are concerned with the language or terms of the contract, you should seek legal advice prior to signing the AOB. If you have questions as to whether the AOB incorporates the provisions required by Florida law, you may contact the Florida Department of Financial Services Insurance Consumer Helpline at 877-693-5236. If the AOB complies with all requirements stipulated by law, once the AOB has been signed, if the third-party assignee will not agree to release you from the contract, the only recourse is to pursue resolution in a court of law.
What responsibilities does the third-party assignee have under an assignment of benefits?
The assignee must provide a copy of the AOB to your insurance company within 3 business days following its execution, or the date work commenced, whichever is earlier.
The assignee must comply with certain policyholder duties as stipulated by the policy including the responsibility to maintain records of all services provided, cooperate with the insurance company’s claim investigation and provide the insurance company with requested records and documents related to the services provided. As a pre-condition to filing suit, the assignee must submit to examinations under oath or recorded statements related to the services provided, the associated cost, and the AOB itself.
Is an assignment of benefits a legal contract? How can I get out of the contract?
Yes. An AOB is a legal contract and it must contain three specific cancellation provisions.
- The AOB must provide you with an option to rescind the AOB contract within 14 days following its execution by submitting written notice to the third party.
- The AOB must provide you with the option to rescind the AOB at least 30 days following its execution if the AOB does not contain a commencement date, and the third party has not begun substantial work on the property.
- The AOB must provide you with the option to rescind the AOB if the third party has not “substantially performed” at least 30 days following the scheduled commencement date.
NOTE: Recent legislative changes prohibit a policyholder from assigning any post-loss benefits of a residential or commercial property insurance contract issued or renewed on or after January 1, 2023. Therefore, Assignment of Benefit agreements may not be established for claims made under contracts subject to this new law.
If I have suffered damage to my insured property, what should I do first?
If you have damage, you should take the necessary steps to mitigate the damage and prevent any additional damage from occurring. This would include any temporary repairs such as covering the roof or removing standing water. You should also immediately contact your insurance company to inform them of the damage and file a claim.
Do not allow a third party, such as a water remediation firm or contractor, to contact your insurance company for you. You should be the one to make the first contact with your insurance company. You do not need to sign an AOB in order to get your insurance claim processed or your residence repaired.
How does an assignment of benefits impact me, as a homeowner?
An AOB can be helpful with navigating the claims process, but if misused it can lead to harmful consequences. Below are a few things to keep in mind:
- You are signing over the rights and benefits of your insurance policy to a third party.
- Depending on the language in the AOB, the insurance company may only be permitted to communicate directly with the third party and you may lose all rights to the insurance claim, including the right to mediate the claim, or to make any decisions regarding the claim, including repairs.
- Depending on the language in the AOB, the third party may be able to endorse checks on your behalf.
- Once you have signed an AOB, the third party may file suit against your insurance company.
Tips to remember before and after you have suffered damage:
- Thoroughly review your insurance policy to ensure you understand the policy, including your coverage, deductibles and responsibilities after damage has occurred. You must also verify if your policy prohibits or otherwise restricts an AOB.
- Immediately following a loss, you have a contractual duty to mitigate your damages and make any temporary repairs to prevent further damage from occurring. Document any existing damage with photographs prior to making any repairs. Do not make permanent repairs prior to an inspection by the insurance company adjuster. The company has a right to inspect the damage prior to repair.
- Make sure you thoroughly review and understand any contracts you sign with repair companies, including an AOB. If you do not agree with the provisions of the AOB, you may be able to negotiate the provisions of the contract. You do not need to sign an AOB to get your insurance claim processed or your residence repaired. If you are asked to sign an AOB, make sure you read it carefully and clearly understand what rights and benefits you may be signing away.
- Verify the license (if one is required) of any contractor or vendor that you hire to make repairs to your property. You should also verify the company or person’s general liability and workers’ compensation insurance coverage.
Below is a checklist that may be helpful when reporting a claim:
- Contact your insurance company directly to report the damage and set up a time for the adjuster to inspect the damages. Do not allow a third party, such as a water remediation firm or contractor, to contact your insurance company for you. You should be the one to make the first contact with your insurance company - as soon as possible.
- Take photos of the damage.
- Make emergency or temporary repairs.
- Make an inventory of any damaged items.
- Save receipts for any repairs.
- Do not discard any damaged items without prior approval from the insurance company.
- Make a list of any questions you would like to ask the insurance adjuster.
- Request a copy of the fire or police report, if applicable.
Assignment of Benefits (AOB) is an agreement that transfers the insurance claims rights or benefits of the policy to a third party. An AOB gives the third party authority to file a claim, make repair decisions, and collect insurance payments without the involvement of the homeowner. AOBs are commonly used in homeowners’ insurance claims by water remediation companies and contractors.
Assignor is a person who assigns insurance claims rights or policy benefits to another person or entity through an AOB.
Assignee or Third-Party is a person or entity who is assigned insurance claims rights or policy benefits through an AOB and has the authority to file a claim with the insurance company, make repair decisions and collect insurance payments without the involvement of the homeowner.
Contract for Repair is a legal agreement for repairs that outlines the scope and cost of repairs to be completed. A contract for repair may state a certain amount is due up front before repairs can be started. If an initial payment is required, it will be listed on the contract and state the remaining balance is to be paid upon completion of the work. Most insurance companies will honor a contract for repair and make the check for outstanding amounts payable to the policyholder and the contractor.
Direct Payment Authorization Clause provides authorization for the direct payment of any benefits or proceeds to the company that is performing the work. This clause is found in an AOB and a contract for repair. Depending on the language in the AOB or the contract for repair, the third party may be able to endorse checks received from the insurance company on behalf of the policyholder for services provided by them. Also, the policyholder is responsible for payment of their deductible and any additional work requested by the policyholder not covered by the insurance policy.
Power of Attorney is a legal document by which one person authorizes another person to take specific actions on behalf of that person, as stated in the document.
Hold Harmless Agreement is an agreement that releases and holds a company harmless against all liability claims in the event the work is halted prior to completion.
Assignment of Benefits Video View this scenario-based video to understand how signing an Assignment of Benefits may impact you as a policyholder. Watch Video
Assignment of Benefits Brochure This downloadable brochure includes definitions, tips and information on Assignment of Benefits. English or Spanish
Consumer Tips & Red Flags Know your rights and the red flags to look for when making a decision concerning Assignment of Benefits. English or Spanish
What to Expect After Filing a Homeowners Claim Learn more about what to expect after reporting a claim to your insurance company or agent. English , Spanish or Creole
What to Expect After Filing a Homeowners Claim Related to a Hurricane Learn more about what to expect after reporting a hurricane-related claim to your insurance company or agent. English , Spanish or Creole
The Flood Claims Process Learn more about what to expect after reporting a flood claim to your insurance company or agent. English
New Jersey Insurance Coverage Litigation
The assignment of insurance policies and claims.
I’ve been a trial lawyer for over 30 years, and I think I need to point out that corporate/transactional lawyers aren’t real lawyers. If you haven’t been on the receiving end of an evidence ruling that makes you wonder whether the judge attended law school in a Winnebago, then I’m sorry, you may be a “practitioner,” but you’re not a real lawyer. On the other hand, corporate/transactional lawyers…er, practitioners…are way, way smarter than we litigators are. They have to understand things like complicated tax laws and how to structure complex commercial deals, which is generally far above our pay grade. Most of us became trial lawyers because we can’t do math.
In structuring transactions, one issue that sometimes comes up is whether insurance claims, or insurance policies, can be assigned to another party. This issue also occasionally arises in the litigation context, when a plaintiff may be willing to settle a case in exchange for the assignment of the defendant’s insurance claim with its carrier. (That may include an assignment of the bad faith claim, if any.)
Warning: Assignments can be tricky. But, while insurance companies may attempt to disclaim coverage based upon any assignment of a policy or claim, in general, the assignment has to increase the carrier’s risk in order to provide a valid basis for denial of a claim.
The New Jersey Appellate Division recently considered the implications of an assignment in Haskell Properties, LLC v. American Ins. Co . The case involved certain insurance companies’ refusal to provide coverage for the cleanup of a contaminated property that Haskell had acquired in an asset sale approved by the bankruptcy court. The carriers argued “no pay,” in part because (according to them) any assignment was invalid since Haskell did not obtain the consent of the insurance companies beforehand.
The Appellate Division first considered Section 541 of the Bankruptcy Code, which defines property that is considered part of the debtor’s estate. Haskell argued that the Bankruptcy Code preempted any contractual provision that attempted to limit or restrict the rights of the debtor to transfer or assign its interests in bankruptcy. The Court held: “Section 541 effectively preempts any contractual provision that purports to limit or restrict the rights of a debtor to transfer or assign its interests in bankruptcy.” But, “it does not govern transfers to third parties from the estate approved by the bankruptcy court under 11 USCA §363, as was the case here”. According to the court, “there is no provision under Section 363 that authorizes the trustee to sell property in violation of state law transfer restrictions.”
So, the Court ruled that insurance companies did not have to cover losses that occurred after a policy was assigned in contravention of a consent-to-assignment clause. If a policy prohibits assignment, and the insurance company does not consent to assignment of the policy…it’s a no go for the policyholder.
These prohibitions do not apply to claims that accrued before the assignment, however. The Court wrote: “The Seller’s claims for coverage under the policies relating to occurrences that happened before the transfer to plaintiff were freely assignable by the Seller, to the extent the policies were ‘occurrence policies.’ Those policies insure ‘the occurrence itself,’ and provide coverage ‘once the occurrence takes place…even though the claim on may not been made for some time thereafter.’” (Emphasis mine; citations omitted.)
The key is whether, by virtue of the assignment, the risk to the carrier increased. According to the Court, “no-assignment [provisions within insurance policies] do not prevent the assignment after loss for the obvious reason that the clause by its own terms ordinarily prohibits the assignment of the policy , as distinguished from a claim arising thereunder, and the assignment before loss involves a transfer of a contractual relationship while the assignment after loss is the assignment of the right to a money claim …The purpose behind a no-assignment clause is to protect the insurer from having to provide coverage for risk different from what the insurer had intended…once the insurer’s liability has become fixed due to a loss, an assignment of rights to collect under insurance policies is not a transfer of the actual policy but a transfer of a right to a claim of money.”
Bottom line: assignment of the policy generally requires the consent of the carrier. Assignment of an existing claim , not so much.
You can read the full Haskell decision by clicking here .
Does your provider accept Medicare as full payment?
You can get the lowest cost if your doctor or other health care provider accepts the Medicare-approved amount as full payment for a covered service. This is called “accepting assignment.” If a provider accepts assignment, it’s for all Medicare-covered Part A and Part B services.
Using a provider that accepts assignment
Most doctors, providers, and suppliers accept assignment, but always check to make sure that yours do.
If your doctor, provider, or supplier accepts assignment:
- Your out-of-pocket costs may be less.
- They agree to charge you only the Medicare deductible and coinsurance amount, and usually wait for Medicare to pay its share before asking you to pay your share.
- They have to submit your claim directly to Medicare and can't charge you for submitting the claim.
How does assignment impact my drug coverage?
Using a provider that doesn't accept Medicare as full payment
Some providers who don’t accept assignment still choose to accept the Medicare-approved amount for services on a case-by-case basis. These providers are called "non-participating."
If your doctor, provider, or supplier doesn't accept assignment:
- You might have to pay the full amount at the time of service.
- They should submit a claim to Medicare for any Medicare-covered services they give you, and they can’t charge you for submitting a claim. If they refuse to submit a Medicare claim, you can submit your own claim to Medicare. Get the Medicare claim form .
- They can charge up to 15% over the Medicare-approved amount for a service, but no more than that. This is called "the limiting charge."
Does the limiting charge apply to all Medicare-covered services?
Using a provider that "opts-out" of Medicare
- Doctors and other providers who don’t want to work with the Medicare program may "opt out" of Medicare.
- Medicare won’t pay for items or services you get from provider that opts out, except in emergencies.
- Providers opt out for a minimum of 2 years. Every 2 years, the provider can choose to keep their opt-out status, accept Medicare-approved amounts on a case-by-case basis ("non-participating"), or accept assignment.
Find providers that opted out of Medicare.
Private contracts with doctors or providers who opt out
- If you choose to get services from an opt-out doctor or provider you may need to pay upfront, or set up a payment plan with the provider through a private contract.
- Medicare won’t pay for any service you get from this doctor, even if it’s a Medicare-covered service.
What are the rules for private contracts?
You may want to contact your State Health Insurance Assistance Program (SHIP) for help before signing a private contract with any doctor or other health care provider.
What do you want to do next?
- Next step: Get help with costs
- Take action: Find a provider
- Get details: How to get Medicare services
- Main content
What is an assignment of benefits agreement?
How does assignment of benefits work.
- Assignment of benefits example
Assignment of benefits for homeowners
Assignment of benefits in healthcare, pros and cons of an aob agreement, canceling an aob agreement, the bottom line, an assignment of benefits contract lets someone else bill an insurance provider on your behalf.
Our experts choose the best products and services to help make smart decisions with your money ( here's how ). In some cases, we receive a commission from our partners ; however, our opinions are our own. Terms apply to offers listed on this page.
- An assignment of benefits is a contract that lets a service provider bill your insurance company directly.
- These agreements are often used in industries like healthcare and home repair.
- Assigning your benefits to someone else can streamline payments, but may increase fraud risk.
When you obtain insurance, whether for your health or your home , you're probably thinking about what the coverage will pay for, not how the payments will be made.
Policyholders who sign an assignment of benefits agreement allow their insurance benefits to go directly to the service provider. Usually, this eliminates the headache of dealing with an insurance company's claims department. But it can also open you up to potential fraud.
An assignment of benefits (AOB) agreement is a contract that a policyholder signs to allow a third party to receive their insurance benefits.
"An assignment of benefits is designating who's going to receive the payment that the insurance company issues after a claim is received," explains Lauren Winans, chief executive officer and principal HR consultant at Next Level Benefits , an HR consulting firm that helps companies navigate employee benefits including insurance.
Without an AOB agreement in place, the policyholder would pay the other party out of their own pocket, then file a claim with their insurance company to get reimbursed.
For example, if you go to a doctor, you might sign an AOB agreement so that their billing department can deal with the insurance provider directly. Ideally, that would prevent you from having to get involved with the claims department at your insurance company.
That said, there can still be circumstances where you have to get involved, even with an assignment of benefits agreement — for example, if you owe the difference between what your doctor charges and what the insurer pays.
These AOB agreements can vary depending on factors like the type of insurance policy, the provider, and state laws. In some cases, an AOB happens automatically. If you go to an in-network doctor, they're under contract with that insurance company. That contract states that the provider will handle billing and receive payment directly from the insurance company, Winans says. But with out-of-network providers you might sign an AOB agreement as part of standard check-in paperwork. That way the doctor can still receive at least some payment directly from the insurance company, and then bill you for the remainder.
Similarly, with property insurance, a contractor or other type of service professional might ask you to sign an assignment of benefits for repair work. When that happens, the service provider would be able to file a claim on your behalf and receive reimbursement from the insurance company.
The exact terms of an AOB agreement vary based on who's asking you to sign. Some agreements might be specific to one type of repair or project, whereas others might cover several. Some agreements go beyond an assignment of benefits and give the contractor full power of attorney rights, says Angel Conlin, chief insurance officer at Kin Insurance , a home insurance provider. Insurers can also differ in how they handle these agreements. A 2019 Florida law, for example, enables insurers to offer policies that restrict the right to use an assignment of benefits agreement, as long as the policy is offered at a discount. Conlin says Kin Insurance policyholders who waive their assignment of benefits right save an average of 5% on their policy. "The good news is they get a discount for giving up a right they probably never knew they had and never really want to use," she says.
For homeowners' insurance, an AOB agreement could be used if a contractor wants to get paid directly from the insurer. In many cases, says Conlin, that happens in a high-pressure situation.
"You discover that there's a water leak and your house is flooding. So you quickly call the fastest place you can find," she says. "Then you're standing there with some papers on a clipboard in front of you to sign so they can start sucking the water out. Oftentimes, there's an assignment of benefits included in there."
In healthcare, an AOB agreement might be used to pay a medical professional that you don't necessarily choose, like an anesthesiologist, Winans says. You may have chosen a surgeon, but the anesthesiologist that gets assigned to you the day of the surgery might bill separately. So, you might be asked to sign an assignment of benefits when you check in. "You're essentially signing that anyone who sees me today can accept payment directly from the insurance company, it doesn't have to go through me as the patient," Winans adds.
An AOB agreement can make the claims and payment processes easier at times, but there are also some downsides to note. Much depends on the situation, so consider factors like what your insurer allows and what the service provider is specifically asking for.
Here are some general pros and cons to consider:
Even though an AOB agreement can streamline the claims and payment processes, there can be downsides that come with transferring benefits to another party, particularly with property insurance. "Because they now stand in the shoes of the insured, they can do everything without asking the insured's permission," Conlin says. For example, a vendor could inflate a claim and commit fraud, she says, causing the claim to get denied and leaving the homeowner unable to get their home repaired. Or, the vendor could sue the insurance company on your behalf for payment on an inflated claim. "So then the insured doesn't have any idea that all of a sudden they have a lawsuit on their record," Conlin adds.
In Florida, these types of lawsuits became an issue due to a state law that helped contractors get attorney's fees paid for by the insurance company. That incentivized some attorneys to work with contractors to obtain AOB agreements and then sue insurers. "That way, the vendor gets to inflate the amount they're demanding, and the attorney gets attorney's fees. So it was this sort of symbiotic partnership between them," Conlin says. A 2022 Florida law removed this allowance, but contractors are trying to fight it in court .
Depending on the circumstances, including laws where you live, policyholders might have some flexibility to cancel an assignment of benefits agreement. For example, in Florida, homeowners have at least 14 days to back out of an agreement without any penalties.
Once the grace period passes, there isn't much recourse. For example, a vendor might file a lawsuit long after the period passes where you can rescind the agreement. In that case, the assignment of benefits agreement stands.
An AOB agreement can make it easy for you to receive insurance benefits without dealing with the claims department at your insurance company. But not all agreements look the same, so read carefully before signing. In some cases, like healthcare, the agreement could work well for all parties. But in other cases, such as home repairs, it might be benefitting the vendor more than the policyholder. If you're unsure about what an assignment of benefits agreement means for you, consider talking to a professional. Your insurer should be able to explain what's allowed in your situation, and external experts, like an attorney, might help you make a more informed decision.
Related articles
- Received a document?
Assignment of Benefits for Contractors: Pros & Cons of Accepting an AOB
22 articles
Insurance , Restoration , Slow Payment
When a property owner files an insurance claim to cover a restoration or roofing project, the owner typically deals directly with the insurance company. They may not have the funds available to pay the contractor out of pocket, so they’re counting on that insurance check to cover the construction costs.
But insurance companies often drag their feet, and payments can take even longer than normal. Contractors often wish they could simply deal with the insurance company directly through an assignment of benefits. In some circumstances, an AOB can be an effective tool that helps contractors collect payment faster — but is it worth it?
In this article, we’ll explain what an assignment of benefits is, and how the process works. More importantly, we’ll look at the pros and cons for restoration and roofing contractors to help you decide if an AOB is worth it .
What is an assignment of benefits?
An assignment of benefits , or AOB, is an agreement to transfer insurance claim rights to a third party. It gives the assignee authority to file and negotiate a claim directly with the insurance company, without involvement from the property owner.
An AOB also allows the insurer to pay the contractor directly instead of funneling funds through the customer. AOBs take the homeowner out of the claims equation.
Here’s an example: A property owner’s roof is damaged in a hurricane. The owner contacts a restoration company to repair the damage, and signs an AOB to transfer their insurance rights to the contractor. The contractor, now the assignee, negotiates the claim directly with the insurance company. The insurer will pay the claim by issuing a check for the repairs directly to the restoration contractor.
Setting up an AOB
A property owner and contractor can set up an assignment of benefits in two steps:
- The owner and the contractor sign an AOB agreement
- The contractor sends the AOB to the insurance company
Keep in mind that many states have their own laws about what the agreement can or should include .
For example, Florida’s assignment of benefits law contains relatively strict requirements when it comes to an assignment of benefits:
- The AOB agreements need to be in writing. The agreement must contain a bolded disclosure notifying the customer that they are relinquishing certain rights under the homeowners policy. You can’t charge administrative fees or penalties if a homeowner decides to cancel the AOB.
- The AOB must include an itemized, per-unit breakdown of the work you plan to do. The services can only involve how you plan to make repairs or restore the home’s damage or protect the property from any further harm. A copy must be provided to the insurance company.
- A homeowner can rescind an AOB agreement within 14 days of signing, or within 30 days if no work has begun and no start date was listed for the work. If a start date is listed, the 30-day rule still applies if substantial progress has not been made on the job.
Before signing an AOB agreement, make sure you understand the property owner’s insurance policy, and whether the project is likely to be covered.
Learn more: Navigating an insurance claim on a restoration project
Pros & cons for contractors
It’s smart to do a cost-benefit analysis on the practice of accepting AOBs. Listing pros and cons can help you make a logical assessment before deciding either way.
Pro: Hiring a public adjuster
An insurance carrier’s claims adjuster will inspect property damage and arrive at a dollar figure calculated to cover the cost of repairs. Often, you might feel this adjuster may have overlooked some details that should factor into the estimate.
If you encounter pushback from the insurer under these circumstances, a licensed, public adjuster may be warranted. These appraisers work for the homeowner, whose best interests you now represent as a result of the AOB. A public adjuster could help win the battle to complete the repairs properly.
Pro: More control over payment
You may sink a considerable amount of time into preparing an estimate for a customer. You may even get green-lighted to order materials and get started. Once the ball starts rolling, you wouldn’t want a customer to back out on the deal.
Klark Brown , Co-founder of The Alliance of Independent Restorers, concedes this might be one of the very situations in which an AOB construction agreement might help a contractor. “An AOB helps make sure the homeowner doesn’t take the insurance money and run,” says Brown.
Pro: Build a better relationship with the homeowner
A homeowner suffers a substantial loss and it’s easy to understand why push and pull with an insurance company might be the last thing they want to undertake. They may desire to have another party act on their behalf.
As an AOB recipient, the claims ball is now in your court. By taking some of the weight off a customer’s shoulders during a difficult period, it could help build good faith and further the relationship you strive to build with that client.
Learn more : 8 Ways for Contractors to Build Trust With a Homeowner
Con: It confuses payment responsibilities
Even if you accept an AOB, the property owner still generally bears responsibility for making payment. If the insurance company is dragging their feet, a restoration contractor can still likely file a mechanics lien on the property .
A homeowner may think that by signing away their right to an insurance claim, they are also signing away their responsibility to pay for the restoration work. This typically isn’t true, and this expectation could set you up for a more contentious dispute down the line if there is a problem with the insurance claim.
Con: Tighter margins
Insurance companies will want repairs made at the lowest cost possible. Just like you, carriers run a business and need to cut costs while boosting revenue.
While some restoration contractors work directly with insurers and could get a steady stream of work from them, Brown emphasizes that you may be sacrificing your own margins. “Expect to accept work for less money than you’d charge independently,” he adds.
The takeaway here suggests that any contractor accepting an AOB could subject themselves to the same bare-boned profit margins.
Con: More administrative work
Among others, creating additional administrative busywork is another reason Brown recommends that you steer clear of accepting AOBs. You’re committing additional resources while agreeing to work for less money.
“Administrative costs are a burden,” Brown states. Insurers may reduce and/or delay payments to help their own bottom lines. “Insurers will play the float with reserves and claims funds,” he added. So, AOBs can be detrimental to your business if you’re spending more while chasing payments.
Con: Increase in average collection period
Every contractor should use some financial metrics to help gauge the health of the business . The average collection period for receivables measures the average time it takes you to get paid on your open accounts.
Insurance companies aren’t known for paying claims quickly. If you do restoration work without accepting an AOB, you can often take action with the homeowner to get paid faster. When you’re depending on an insurance company to make your payment, rather than the owner, collection times will likely increase.
The literal and figurative bottom line is: If accepting assignment of benefits agreements increases the time it takes to get paid and costs you more in operational expense, these are both situations you want to avoid.
Learn more: How to calculate your collection effectiveness
AOBs and mechanics liens
A mechanics lien is hands down a contractor’s most effective tool to ensure they get paid for their work. Many types of restoration services are protected under lien laws in most states. But what happens to lien rights when a contractor accepts an assignment of benefits?
An AOB generally won’t affect a contractor’s ability to file a mechanics lien on the property if they don’t receive payment. The homeowner is typically still responsible to pay for the improvements. This is especially true if the contract involves work that wasn’t covered by the insurance policy.
However, make sure you know the laws in the state where your project is located. For example, Florida’s assignment of benefits law, perhaps the most restrictive in the country, appears to prohibit an AOB assignee from filing a lien.
Florida AOB agreements are required to include language that waives the contractor’s rights to collect payment from the owner. The required statement takes it even further, stating that neither the contractor or any of their subs can file a mechanics lien on the owner’s property.
On his website , Florida’s CFO says: “The third-party assignee and its subcontractors may not collect, or attempt to collect money from you, maintain any action of law against you, file a lien against your property or report you to a credit reporting agency.”
That sounds like a contractor assignee can’t file a lien if they aren’t paid . But, according to construction lawyer Alex Benarroche , it’s not so cut-and-dry.
“Florida’s AOB law has yet to be tested in court, and it’s possible that the no-lien provision would be invalid,” says Benarroche. “This is because Florida also prohibits no-lien clauses in a contract. It is not legal for a contractor to waive their right to file a lien via an agreement prior to performance.”
Learn more about no-lien clauses and their enforceability state-by-state
Remember that every state treats AOBs differently, and conflicting laws can create additional risk. It’s important to consult with a construction lawyer in the project’s state before accepting an assignment of benefits.
Best practices for contractors
At the end of the day, there are advantages and disadvantages to accepting an assignment of benefits. While it’s possible in some circumstances that an AOB could help a contractor get paid faster, there are lots of other payment tools that are more effective and require less administrative costs. An AOB should never be the first option on the table .
If you do decide to become an assignee to the property owner’s claim benefits, make sure you do your homework beforehand and adopt some best practices to effectively manage the assignment of benefits process. You’ll need to keep on top of the administrative details involved in drafting AOBs and schedule work in a timely manner to stay in compliance with the conditions of the agreement.
Make sure you understand all the nuances of how insurance works when there’s a claim . You need to understand the owner’s policy and what it covers. Home insurance policy forms are basically standardized for easy comparisons in each state, so what you see with one company is what you get with all carriers.
Since you’re now the point of contact for the insurance company, expect more phone calls and emails from both clients and the insurer . You’ll need to have a strategy to efficiently handle ramped-up communications since the frequency will increase. Keep homeowners and claims reps in the loop so you can build customer relationships and hopefully get paid faster by the insurer for your work.
Ask an expert for free
I believe a person was impersonating as a licensed general contractor. When I verified the license in GA, the license belonged to a completely different individual. When I called the provided insurance carrier of the general contractor, the insurance company said the company did not have an active...
I am the Director of Finance who oversees the lien process. We are a roof, siding and gutter company that has been in business for 20+ years.
I received and lean for work done on a three level three unit apartment building and I live in one of the units the lien is an intent to lean it was sent registered mail but I never signed it because it was just put through the door....
Thomas Tracy
View Profile
About the author
Recommended for you
What is overbilling | construction industry accounting.
Overbilling occurs when a contractor bills for contracted labor and materials prior to that work actually being completed. For example,...
Do I Have to Sign a Lien Waiver to Get Paid?
Lien waivers are an important part of optimizing construction payment. Property owners and GCs rely on waivers to manage the...
Lien Waiver vs. Lien Release: What’s the Difference?
Lien waivers and lien releases are completely different documents (even though they are often confused by the construction industry). Read...
How to Protect Your Payments When Dealing with a Construction Bankruptcy
Bankruptcies in the construction industry are unfortunately very common. Learn how a mechanics lien can help make sure your company...
What Is a Construction Schedule of Values? [Free Template Download]
A Schedule of Values is an essential tool used in construction project accounting that represents a start-to-finish list of work...
What Is A Joint Check Agreement?
While joint checks and joint check agreements are common in the construction business, these agreements can actually be entered into...
What Is a Notice of Commencement? Your Guide with Form Downloads
Typically, the filing of a notice of commencement by the property owner or other top-of-chain party affects preliminary notice and...
Construction Contracts: Pros and Cons of a Cost-Plus Contract
What is a cost-plus contract and how is it used in the construction industry? This type of contract is also...
Recent Searches
Relevant insights.
PROFESSIONALS | Lawyers
Access the profiles of the more than 350 Lowenstein Sandler lawyers who provide critical legal counsel to clients in virtually every sector of the global economy...
NEWS & INSIGHTS | Firm News
Discover the latest updates and developments about Lowenstein Sandler...
NEWS & INSIGHTS | Publications
Access our insightful thought leadership, including articles, client alerts, and blog posts...
Featured Content
2022 Year in Review
VENTURE CAPITAL / Firm News
Lowenstein Represents Commerce Ventures as Lead Investor in Series B Financing of Payment Processor Moov Financial, Inc.
CAPITAL MARKETS / Firm News
Lowenstein Represents Chatham Asset Management in $500M High-Yield Debt Exchange With Issuer Mohegan Tribal Gaming Authority
- Management Team
- Practices & Sectors
- All Publications
- Client Alerts
- Newsletters
- Events & Speaking Engagements
- In the Media
- Diversity, Equity & Inclusion
- Coronavirus/COVID-19: Facts, Insights & Resources
- Lowenstein Sandler Global Connections
- Managing Partner's Corner
- VentureCrush
Related Areas
- Insurance Recovery
+1 202.753.3758
Assignment of Insurance Rights May Be Used for Claims Against Judgment-Proof Defendants
In determining whether to bring a lawsuit against an alleged wrongdoer, potential plaintiffs assess a number of factors, including whether the wrongdoer has any recoverable assets and whether pursuing the claim will be financially worthwhile. On the flipside, companies and their officers and directors attempt to manage risk by minimizing claims that may require the outlay of substantial defense costs and potentially significant indemnity payments through settlements or satisfaction of judgments. In a claim scenario where the defendant company is financially distressed and the individual directors and/or officers of the company are the only viable defendants, insurance may play a prominent role in resolving the claim dispute. By way of example, in Intelligent Digital Systems, LLC, et al. v. Beazley Insurance Company , 2:12-cv-01209 (E.D.N.Y. Sept. 16, 2016), the Eastern District of New York joined a growing national trend by finding that, under New York law, claimants may enter into an agreement with individual defendants to resolve a claim by judgment where the claimants agree they will pursue satisfaction of that judgment only from the defendants' insurance company, not from the individual defendants' personal assets. In Intelligent Digital Systems , plaintiffs sought coverage under a D&O policy sold by defendant Beazley Insurance Company ("Beazley Insurance") for claims against former directors of Visual Management Systems, Inc. alleging securities fraud and non-payment of promissory notes. The former directors had entered into settlements with plaintiffs under which the former directors stipulated to judgments and assigned to plaintiffs their rights under the policy. In exchange, plaintiffs agreed to "unconditionally forbear" collection of the judgments against the former directors. The stipulations also made clear that plaintiffs did not waive or release their right to assert any claim against Beazley Insurance. In the coverage action, Beazley Insurance contended that these settlements were not covered under the policy. The policy provided coverage for "Loss" resulting from claims made against the former directors and defined "Loss," in relevant part, as "[T]he amounts which the Insureds become legally obligated to pay on account of a claim." Beazley Insurance argued that the settlements did not constitute "Loss" because the insured former directors were not "legally obligated to pay" any amount, given that plaintiffs had agreed not to execute their judgment against the former directors. Consistent with the majority rule followed in Colorado, Kansas, New Jersey, Washington, and Washington, D.C., the court rejected the insurer's argument and ruled that, notwithstanding the agreement not to execute, the judgments constituted loss under the policy. The court considered precedent in New York and other jurisdictions which found that the phrase "legally obligated to pay" in insurance policies covers consent judgments, provided the assignment does not release the insurance company from liability. The court adopted the reasoning of other courts and permitted plaintiffs, as assignees under the policy, to pursue collection of the agreed-upon judgment from Beazley Insurance. Intelligent Digital Systems represents an important victory for policyholders in New York and highlights some key considerations by any party contemplating a similar arrangement:
- Insurance may be a source of recovery against defendants with limited assets. Even when faced with a likely judgment-proof defendant, claimants should consider the defendant's insurance policy as a potential source of recovery.
- Obtaining an assignment of insurance rights may be a way to avoid costly and burdensome litigation. Policyholders faced with a lawsuit may find assigning their insurance rights to be an advantageous approach to resolve a lawsuit quickly and return to the important work of their businesses before incurring substantial litigation costs.
- Consider all potentially applicable law. As the Intelligent Digital Systems court noted, the trend by courts that have considered the issue is that settlements with insurance assignments are permissible. However, there are still many jurisdictions where this issue is undecided, and a few courts have found that such settlements are not covered. Therefore, all potentially applicable law should be considered when deciding whether to enter into a similar settlement.
- The insurance policy language matters. Intelligent Digital Systems distinguished an Eighth Circuit case in which the policy's definition of loss explicitly excluded "any amount . . . for which the Insured Person is absolved from payment by reason of any covenant, agreement or court order." If a policy has similar exclusionary language, a stipulated judgment with a covenant not to execute may not be covered. Policies also may contain other provisions, such as consent-to-settle provisions or non-assignment provisions, which need to be considered.
- Avoid waiver or release. A settlement with assignment of insurance rights must not include a release of claims against the insurer. Rather, as a best practice, such settlements should explicitly state that nothing in them constitutes a waiver or release of the claimant's right to bring claims against the policyholder's insurer.
If you have any questions about this or any other matter, please contact the authors of this alert or any other Lowenstein Sandler attorney with whom you typically consult.
Alternative Data = Better Investment Strategies, But Not Without Concerns
Error Message text..
Lowenstein Sandler will not use or disclose your information except as stated in our privacy policy .
- Type 2 Diabetes
- Heart Disease
- Digestive Health
- Multiple Sclerosis
- COVID-19 Vaccines
- Occupational Therapy
- Healthy Aging
- Advil (Ibuprofen)
- Mobic (Meloxicam)
- Naprosyn (Naproxen)
- Neurontin (Gabapentin)
- Pepcid AC (Famotidine)
- Rayos (Prednisone)
- Health Insurance
- Public Health
- Patient Rights
- Health Technology
- Caregivers & Loved Ones
- End of Life Concerns
- Health News
- Thyroid Test Analyzer
- Doctor Discussion Guides
- Hemoglobin A1c Test Analyzer
- Lipid Test Analyzer
- Complete Blood Count (CBC) Analyzer
- What to Buy
- Editorial Process
- Meet Our Medical Expert Board
Medicare Assignment: Everything You Need to Know
:max_bytes(150000):strip_icc():format(webp)/NorrisNew-594990123df78c537b5178a2.jpg "assignment in insurance claims")
Nick Blackmer is a librarian, fact-checker, and researcher with more than 20 years’ experience in consumer-oriented health and wellness content.
Medicare Assignment
- Providers Accepting Assignment
- Providers Who Do Not
- Billing Options
- Assignment of Benefits
- How to Choose
Frequently Asked Questions
Medicare assignment is an agreement between Medicare and medical providers (doctors, hospitals, medical equipment suppliers, etc.) in which the provider agrees to accept Medicare’s fee schedule as payment in full when Medicare patients are treated.
This article will explain how Medicare assignment works, and what you need to know in order to ensure that you won’t receive unexpected bills.
fizkes / Getty Images
There are 35 million Americans who have Original Medicare. Medicare is a federal program and most medical providers throughout the country accept assignment with Medicare. As a result, these enrollees have a lot more options for medical providers than most of the rest of the population.
They can see any provider who accepts assignment, anywhere in the country. They can be assured that they will only have to pay their expected Medicare cost-sharing (deductible and coinsurance, some or all of which may be paid by a Medigap plan , Medicaid, or supplemental coverage provided by an employer or former employer).
It’s important to note here that the rules are different for the 29 million Americans who have Medicare Advantage plans. These beneficiaries cannot simply use any medical provider who accepts Medicare assignment.
Instead, each Medicare Advantage plan has its own network of providers —much like the health insurance plans that many Americans are accustomed to obtaining from employers or purchasing in the exchange/marketplace .
A provider who accepts assignment with Medicare may or may not be in-network with some or all of the Medicare Advantage plans that offer coverage in a given area. Some Medicare Advantage plans— health maintenance organizations (HMOs) , in particular—will only cover an enrollee’s claims if they use providers who are in the plan's network.
Other Medicare Advantage plans— preferred provider organizations (PPOs) , in particular—will cover out-of-network care but the enrollee will pay more than they would have paid had they seen an in-network provider.
Original Medicare
The bottom line is that Medicare assignment only determines provider accessibility and costs for people who have Original Medicare. People with Medicare Advantage need to understand their own plan’s provider network and coverage rules.
When discussing Medicare assignment and access to providers in this article, keep in mind that it is referring to people who have Original Medicare.
How to Make Sure Your Provider Accepts Assignment
Most doctors, hospitals, and other medical providers in the United States do accept Medicare assignment.
Provider Participation Stats
According to the Centers for Medicare and Medicaid Services, 98% of providers participate in Medicare, which means they accept assignment.
You can ask the provider directly about their participation with Medicare. But Medicare also has a tool that you can use to find participating doctors, hospitals, home health care services, and other providers.
There’s a filter on that tool labeled “Medicare-approved payment.” If you turn on that filter, you will only see providers who accept Medicare assignment. Under each provider’s information, it will say “Charges the Medicare-approved amount (so you pay less out-of-pocket).”
What If Your Provider Doesn’t Accept Assignment?
If your medical provider or equipment supplier doesn’t accept assignment, it means they haven’t agreed to accept Medicare’s approved amounts as payment in full for all of the services.
These providers can still choose to accept assignment on a case-by-case basis. But because they haven’t agreed to accept Medicare assignment for all services, they are considered nonparticipating providers.
Note that "nonparticipating" does not mean that a provider has opted out of Medicare altogether. Medicare will still pay claims for services received from a nonparticipating provider (i.e., one who does not accept Medicare assignment), whereas Medicare does not cover any of the cost of services obtained from a provider who has officially opted out of Medicare.
If a Medicare beneficiary uses a provider who has opted out of Medicare, that person will pay the provider directly and Medicare will not be involved in any way.
Physicians Who Have Opted Out
Only about 1% of all non-pediatric physicians have opted out of Medicare.
For providers who have not opted out of Medicare but who also don’t accept assignment, Medicare will still pay nearly as much as it would have paid if you had used a provider who accepts assignment. Here’s how it works:
- Medicare will pay the provider 95% of the amount they would pay if the provider accepted assignment.
- The provider can charge the person receiving care more than the Medicare-approved amount, but only up to 15% more (some states limit this further). This extra amount, which the patient has to pay out-of-pocket, is known as the limiting charge . But the 15% cap does not apply to medical equipment suppliers; if they do not accept assignment with Medicare, there is no limit on how much they can charge the person receiving care. This is why it’s particularly important to make sure that the supplier accepts Medicare assignment if you need medical equipment.
- The nonparticipating provider may require the person receiving care to pay the entire bill up front and seek reimbursement from Medicare (using Form CMS 1490-S ). Alternatively, they may submit a claim to Medicare on behalf of the person receiving care (using Form CMS-1500 ).
- A nonparticipating provider can choose to accept assignment on a case-by-case basis. They can indicate this on Form CMS-1500 in box 27. The vast majority of nonparticipating providers who bill Medicare choose to accept assignment for the claim being billed.
- Nonparticipating providers do not have to bill your Medigap plan on your behalf.
Billing Options for Providers Who Accept Medicare
When a medical provider accepts assignment with Medicare, part of the agreement is that they will submit bills to Medicare on behalf of the person receiving care. So if you only see providers who accept assignment, you will never need to submit your own bills to Medicare for reimbursement.
If you have a Medigap plan that supplements your Original Medicare coverage, you should present the Medigap coverage information to the provider at the time of service. Medicare will forward the claim information to your Medigap insurer, reducing administrative work on your part.
Depending on the Medigap plan you have, the services that you receive, and the amount you’ve already spent in out-of-pocket costs, the Medigap plan may pay some or all of the out-of-pocket costs that you would otherwise have after Medicare pays its share.
(Note that if you have a type of Medigap plan called Medicare SELECT, you will have to stay within the plan’s network of providers in order to receive benefits. But this is not the case with other Medigap plans.)
After the claim is processed, you’ll be able to see details in your MyMedicare.gov account . Medicare will also send you a Medicare Summary Notice. This is Medicare’s version of an explanation of benefits (EOB) , which is sent out every three months.
If you have a Medigap plan, it should also send you an EOB or something similar, explaining the claim and whether the policy paid any part of it.
What Is Medicare Assignment of Benefits?
For Medicare beneficiaries, assignment of benefits means that the person receiving care agrees to allow a nonparticipating provider to bill Medicare directly (as opposed to having the person receiving care pay the bill up front and seek reimbursement from Medicare). Assignment of benefits is authorized by the person receiving care in Box 13 of Form CMS-1500 .
If the person receiving care refuses to assign benefits, Medicare can only reimburse the person receiving care instead of paying the nonparticipating provider directly.
Things to Consider Before Choosing a Provider
If you’re enrolled in Original Medicare, you have a wide range of options in terms of the providers you can use—far more than most other Americans. In most cases, your preferred doctor and other medical providers will accept assignment with Medicare, keeping your out-of-pocket costs lower than they would otherwise be, and reducing administrative hassle.
There may be circumstances, however, when the best option is a nonparticipating provider or even a provider who has opted out of Medicare altogether. If you choose one of these options, be sure you discuss the details with the provider before proceeding with the treatment.
You’ll want to understand how much is going to be billed and whether the provider will bill Medicare on your behalf if you agree to assign benefits (note that this is not possible if the provider has opted out of Medicare).
If you have supplemental coverage, you’ll also want to check with that plan to see whether it will still pick up some of the cost and, if so, how much you should expect to pay out of your own pocket.
A medical provider who accepts Medicare assignment is considered a participating provider. These providers have agreed to accept Medicare’s fee schedule as payment in full for services they provide to Medicare beneficiaries. Most doctors, hospitals, and other medical providers do accept Medicare assignment.
Nonparticipating providers are those who have not signed an agreement with Medicare to accept Medicare’s rates as payment in full. However, they can agree to accept assignment on a case-by-case basis, as long as they haven’t opted out of Medicare altogether. If they do not accept assignment, they can bill the patient up to 15% more than the Medicare-approved rate.
Providers who opt out of Medicare cannot bill Medicare and Medicare will not pay them or reimburse beneficiaries for their services. But there is no limit on how much they can bill for their services.
A Word From Verywell
It’s in your best interest to choose a provider who accepts Medicare assignment. This will keep your costs as low as possible, streamline the billing and claims process, and ensure that your Medigap plan picks up its share of the costs.
If you feel like you need help navigating the provider options or seeking care from a provider who doesn’t accept assignment, the Medicare State Health Insurance Assistance Program (SHIP) in your state may be able to help.
A doctor who does not accept Medicare assignment has not agreed to accept Medicare’s fee schedule as payment in full for their services. These doctors are considered nonparticipating with Medicare and can bill Medicare beneficiaries up to 15% more than the Medicare-approved amount.
They also have the option to accept assignment (i.e., accept Medicare’s rate as payment in full) on a case-by-case basis.
There are certain circumstances in which a provider is required by law to accept assignment. This includes situations in which the person receiving care has both Medicare and Medicaid. And it also applies to certain medical services, including lab tests, ambulance services, and drugs that are covered under Medicare Part B (as opposed to Part D).
In 2021, 98% of American physicians had participation agreements with Medicare, leaving only about 2% who did not accept assignment (either as a nonparticipating provider, or a provider who had opted out of Medicare altogether).
Accepting assignment is something that the medical provider does, whereas assignment of benefits is something that the patient (the Medicare beneficiary) does. To accept assignment means that the medical provider has agreed to accept Medicare’s approved fee as payment in full for services they provide.
Assignment of benefits means that the person receiving care agrees to allow a medical provider to bill Medicare directly, as opposed to having the person receiving care pay the provider and then seek reimbursement from Medicare.
Centers for Medicare and Medicaid Services. Medicare monthly enrollment .
Centers for Medicare and Medicaid Services. Annual Medicare participation announcement .
Centers for Medicare and Medicaid Services. Lower costs with assignment .
Centers for Medicare and Medicaid Services. Find providers who have opted out of Medicare .
Kaiser Family Foundation. How many physicians have opted-out of the Medicare program ?
Center for Medicare Advocacy. Durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) updates .
Centers for Medicare and Medicaid Services. Check the status of a claim .
Centers for Medicare and Medicaid Services. Medicare claims processing manual. Chapter 26 - completing and processing form CMS-1500 data set .
Centers for Medicare and Medicaid Services. Ambulance fee schedule .
Centers for Medicare and Medicaid Services. Prescription drugs (outpatient) .
By Louise Norris Louise Norris has been a licensed health insurance agent since 2003 after graduating magna cum laude from Colorado State with a BS in psychology.
By clicking “Accept All Cookies”, you agree to the storing of cookies on your device to enhance site navigation, analyze site usage, and assist in our marketing efforts.
Assignment of Claims Sample Clauses
What Is an Assignment of Benefits Form?
Our team is passionate about helping homeowners make the right coverage decisions. we adhere to strict editorial guidelines that ensure our content remains accurate and helpful. this post may advertise partners who compensate us but our reviews remain our own opinion. read our guarantee for more information..
When the unthinkable occurs, it can leave you with a severely damaged home and a lot of work to organize and implement. This can translate to thousands of dollars, and all of that money typically comes from an insurance policy claim payout . When an assessment takes place, and work is set to start, a vendor may ask you to fill out an Assignment of Benefits (AOB) form, but what is it?
An Assignment of Benefits form, also known as an AOB, is a document that transfers the policyholder’s rights to a third-party such as a construction manager or contractor. Once the AOB is signed, the third party has the authority to file claims, collect payouts, and make repair decisions without involving the policyholder.
AOBs are not always required, but some contractors use them as a safety net to perform large quantities of work and secure payment. No contractor should push a homeowner to sign an AOB. Keep reading to learn more about AOBs and how they can help or harm a claim.
- Assignment of Benefits forms are used to provide a contractor or vendor with the full legal ability to handle an insurance claim, including payment, work done, and inspections.
- Some states allow policyholders to revoke AOB forms for certain legal causes.
- Once an AOB has been signed, the homeowner loses the ability to make any decisions on the open claim.
- After a claim is closed by the insurance agency, the policyholder gains back all rights to manage future claims.
Advantages of assignment of benefits forms
Sometimes it is hard to navigate insurance claims . It can be even more challenging when dealing with the emotions that come with the aftermath of a destructive event or accident. Assignment of Benefits Forms is a great tool when you are unable to oversee the claims process or are too overwhelmed to deal with repairs, contractors, and insurance queries.
An AOB allows the contractor to take over as the party who handles the claim. They make all the final decisions, and the owner loses a say in the claim overall. If the contractor or vendor is trustworthy and reputable, this can be convenient. If the contractor or vendor does not have a solid reputation, it can be a nightmare.
When making the decision to use an AOB instead of handling the claim yourself, ensure that it is the right fit for you and meets your needs. If it does, it could save you a lot of time, headache, and frustration overall.
Disadvantages of assignment of benefits forms
There is one large disadvantage of an Assignment of Benefits form. This is the fact that once a homeowner or policyholder signs the form, their rights as a policyholder are removed for that specific claim.
This means the policyholder no longer has any say in the work being done, the vendor selected, and how a claim is paid out or handled. The entire process is in the hands of the contractor, and that contractor can make all the final calls.
If you are someone who likes to be hands-on during repairs and ensure contractors provide quality work before paying out, then this method may not be the right option for you.
Can an assignment of benefits be revoked?
Some states have laws in place that allow policyholders to revoke an assignment of benefits within a specific time frame. The revocation is only allowed under certain circumstances. Examples of these circumstances could be:
- The policyholder changes their mind within a certain time period
- The contractor or benefit assignee has not started substantial work after 30 days
- No commencement date is on the assignment of benefits, and substantial work has not begun
These revocation laws are in place to protect policyholders from contractors and vendors with poor business practices and alternative motives. This allows the policyholder to exit a contract without a penalty for breaching and terminating early.
How long is an assignment of benefits good for?
An Assignment of Benefits is good for the duration of a claim. This means that if it takes one year for a contractor to fix the item or dwelling listed in the claim, then the AOB will last for one year. If it takes less time, then the AOB is finished at the close of the claim.
Once the claim is closed by the insurance company , your rights as a policyholder for future claims are intact. This means if you prefer to handle a claim in the future on your own instead of using an AOB, you will be able to do so without penalty.
Avoiding AOB scams
It is extremely important to keep an eye out for scams when using an AOB. There are many unsavory characters in the world that will use this opportunity to take the rights of a homeowner and use them to their advantage and acquire more money for less quality. Some things to look out for when watching for such scams are:
- Don’t succumb to pressure . If the company is pressuring you to sign an AOB right out of the gate, find another company. This is a sign of bad business practice.
- Get estimates . Ensure that you shop around before selecting a contractor. Each company offers its own competitive pricing based on supplies, manpower, and resources.
- Get referrals . Ask for referrals from the company or contractor before you sign anything. Also, go online and look up reviews from reputable review sites. This will give you an idea if the company is reputable.
- Read the fine print and get it all in writing . It is extremely important to read a contract in its entirety before committing to an AOB. Contracts are binding, and if there is something within a contract that you do not agree with, you have no way to change it later once an AOB is signed.
- Talk to your insurer . Your insurance agency deals with vendors and contractors on a daily basis. They know the ins and outs of good practices and can often help recommend reputable vendors to guide you through the process.
Going into an AOB blind can result in an exam that costs you thousands of dollars. Be diligent and research your options before entering into any agreement.
Go with your gut
When deciding whether or not to select an AOB to handle a claim, it is often best to go with your gut. If you know a reputable company that has a good history handling similar projects and claims, they may be a great option to reduce stress. On the flip side, if you prefer to be part of the process and have more control, skipping an AOB may be right for you.
Also read: What to do with money leftover from an insurance claim?
Leave a Comment Cancel reply
You must be logged in to post a comment.
Here's a link you can share with friends and family:
Check out this article from USAA:
Share (Opens Pop-up Layer)
An AOB supposedly makes things quicker and easier on policyholders. Since auto claims can get a little tricky, it can be challenging and time-consuming to navigate, especially if you've never done it before .
Having an AOB means you just drop off your car to get repaired and pick it up when it's done. The vendor then sorts out the details of getting paid by your insurance. Pretty straightforward, right?
Unfortunately, that's not always how it works.
AOB challenges for insurance policyholders
While an AOB authorizes the third party to act, one problem with removing yourself from the claim process is that now you're not part of the claim process. Not such a big deal if your repairs get done on time and to your satisfaction. But what if you have questions about your repairs? What if there's an unexpected delay?
When you sign an AOB for your auto insurance, the repair shop or service provider becomes the policy beneficiary for the claim — not you. As a result, you can lose transparency and control over your claim. Your insurance company may even be limited in what it can do to help.
The truth about AOB insurance scams
In theory, an AOB should make life easier for everyone, especially the policyholder. Actually, AOBs frequently turn into inflated claims and unnecessary litigation for insurance companies. Here's how it happens:
Let's say your car window breaks . You take it to a repair specialist and sign an AOB so they can bill your insurance directly. This plan keeps you from paying the bill yourself and getting reimbursed by your insurer later.
Instead of billing their standard rate for a window replacement, the vendor overbills your insurance, or they add extra charges for things they didn't fix. Your insurance pays the claim and the repair shop pockets the extra cash.
At best, that increased claim cost drives up your insurance rate . But what if your insurer denies the claim? That might leave you to cover the cost. Or it could even turn into an ugly — and expensive — lawsuit.
To be clear, when we talk about AOB insurance scams, we're not talking about minor surcharges. According to a 2018 report, AOB claims in Florida were 85% more expensive than non-AOB claims . See note 1 That's how the state became the poster child for AOB abuse.
While AOBs have been used in Florida for more than 100 years, many vendors in the state have used them for windshield claims. That's increased the cost of auto insurance across the state. The reason: You may not pay a deductible on a windshield claim, whether you sign an AOB or not. In 2020, the state saw more than 27,000 auto glass AOB lawsuits.
But the customers pay for it. By one estimate, Florida's auto and homeowners policyholders paid over $2.5 billion in insurer legal costs . See note 1 And that's not counting the billions more in excess claim settlements.
In response to the widespread AOB abuse in Florida, lawmakers passed the 2021 Property Insurance Reform Bill (SB 76) to help improve Florida's property insurance market.
What should you do when filing an auto claim?
AOBs can cause problems for you, your insurer and your premium. But are they worth it? How do you handle it the right way and avoid getting scammed?
There's no way to guarantee a vendor won't try to scam you or your insurance company. AOBs are legally binding, and they can give vendors power to exaggerate the scope of your claim, with or without your knowledge.
Before reaching for that AOB form for an auto insurance claim, call your insurance company. Make sure you have a clear understanding of your policy and what you should expect during the claims process .
Don't sign an AOB until you can weigh the risks and benefits. Always keep an eye out for AOB clauses on any document from a third-party vendor to make sure you don't unknowingly sign away your rights.
Fortunately, you don't have to use an AOB, even if you have one. Although it may be more challenging, it's generally wiser to file your own claims . This allows you to keep control of your claim and the policy benefits you pay for.
Insuring your vehicle
Want superior service and great savings? See how we can help.
Related Articles
- What happens when your car is totaled?
- 7 reasons auto insurance rates are rising
- Understanding homeowners insurance
- 5 ways to help lower auto insurance rates
You can quickly file claims for damage to your home, car and more.
Related products.
- Homeowners Insurance
- Renters Insurance
- Umbrella Insurance
- Valuable Personal Property Insurance
- Rental Property Insurance
- Small Business Insurance
- VA IRRRL Loan Refinancing
Additional Resources
- Natural Disaster Center
- Property Risk Assessment Tool
- USAA Perks™
- Home Maintenance Guide
- Mortgage Rates
- Mortgage Payment Calculator
Note 1 You are leaving USAA and being directed to a third party site that is not maintained, owned or operated by USAA. USAA does not control and is not responsible for the site content or the privacy or security practices of third parties. You should read the third party's privacy and security policies and site terms, as their practices may differ from those of USAA.
Membership eligibility and product restrictions apply and are subject to change.
Property and casualty insurance provided by United Services Automobile Association, and its affiliate property and casualty insurance companies is available only to persons eligible for P&C group membership. Each company has sole financial responsibility for its own products.
Auto insurance provided by United Services Automobile Association and its property and casualty affiliates, San Antonio, Texas.
- Search Search Please fill out this field.
- Building Your Business
- Business Insurance
Can You Assign Your Insurance Benefits to Someone Else?
Monashee Frantz / Getty Images
Most business insurance policies contain a so-called anti-assignment clause. This clause prohibits policyholders from transferring any of their rights under the policy to someone else. This means that the insured business cannot cede its right to collect claim payments to another party. However, laws in most states permit policyholders to transfer their rights to another party under certain circumstances.
Anti-Assignment Clause
In the standard ISO policies , the anti-assignment clause is located in a separate form called the Common Policy Conditions. These conditions apply to all coverages that are included in the policy. For instance, if a policy includes business auto , general liability , and commercial property coverages, the anti-assignment clause applies to all three coverages.
The clause is entitled Transfer of Your Rights and Duties Under This Policy. It includes the following provision:
Your rights and duties under this policy may not be transferred without our written consent except in the case of death of an individual named insured.
The anti-assignment clause prohibits the named insured from transferring any of its rights or obligations under the policy to someone else without the insurer's permission. The only exception is if the named insured is an individual (sole proprietor) and he or she dies. An assignment is permitted in this case because a sole proprietorship and the individual owner are one and the same. If the individual dies, the business cannot survive unless it is sold to someone else.
An anti-assignment clause is intended to prevent the insurer from unwittingly assuming risks it never intended to take on. Commercial insurers review business insurance applicants carefully. Before they issue policies, underwriters consider the knowledge and experience of a company's owners and managerial staff. If a business is sold to someone else, the new owners may not be as skilled or attentive as the previous ones. From the insurer's perspective, the new owners are an unknown risk.
Post-Loss Assignments Permitted
The anti-assignment clause doesn't distinguish between assignments made before a loss and those made afterward. Even so, courts in most states have allowed policyholders to assign their rights to another party after a loss has occurred. Pre-loss assignments are still prohibited. Here is an example of a post-loss assignment of insurance benefits.
Victor operates a restaurant called Vital Vittles out of a building he owns. Late one January night two water pipes in the building freeze. The pipes subsequently burst, causing considerable water damage to Victor's building. Victor is forced to close his restaurant until the repairs are completed.
Victor hires a water damage contractor called Rapid Restoration to repair the damage to his building. He tells the contractor that he needs the repairs done quickly as he is anxious to reopen his restaurant. The contractor says that the repairs can be expedited if Victor signs over his rights under the policy to Rapid Restoration. The contractor will then proceed with the repairs and negotiate a claim settlement with Vital Vittles' commercial property insurer. Victor agrees to the assignment and the contractor begins the repair work.
While Vital Vittles' commercial property policy contains an anti-assignment clause, Victor has assigned his rights to Rapid Restoration after a loss has occurred. Thus, in most states, Victor's insurer cannot reject the assignment (assuming post-loss assignments are permitted in Victor's state).
Problems With Assignments of Benefits
In recent years, assignment of benefits (AOB) agreements have been problematic in some states, particularly Florida. Unscrupulous contractors have preyed on unsuspecting homeowners and business owners who have suffered water damage . Some contractors work alone while others operate in cahoots with crooked lawyers. In either event, the contractor convinces the policyholder to assign his or her rights under the policy over to the contractor. The contractor then exaggerates the cost of the repairs and collects the inflated amount from the insurer. The policyholder is left with a large claim on his or her loss history. When the policy expires, the insurer may refuse to renew it.
In the previous example, Victor has assigned his rights under the policy to Rapid Restoration. Suppose that Rapid Restoration completes only half of the repair work on Victor's building. The actual cost is $15,000 but the contractor submits a bill to the insurer for $30,000. Alternatively, the contractor never submits a bill but sues the insurer for $30,000. In either case, the insurer may refuse to pay on the basis that the contractor has committed insurance fraud. Victor cannot intervene because he has signed his rights over to the contractor. If the contractor is unsuccessful in its lawsuit against the insurer, it may demand payment from Victor's company.
Avoiding Problems With AOBs
As a business owner, you can avoid problems associated with AOBs and unscrupulous contractors by taking the following steps:
- Report any loss or accident directly to your insurer (or your agent or broker ). Notify your insurer immediately. Don't allow a contractor to do the notification on your behalf.
- Take photos of the damage.
- Don't allow any contractor to begin work until an insurance adjuster has documented the damage
- Vet contractors thoroughly before hiring them. Make sure they are properly licensed. If your area has suffered a natural disaster, watch out for construction scams.
- Don't sign an AOB unless you have reviewed it carefully. If you don't understand it, ask your agent, insurer, or attorney for assistance.
- If your contractor won't do any work until you've signed an AOB, find another contractor.
AOBs in Health Insurance
Assignment of benefit agreements are common in health insurance. Patients are often asked to agree to such clauses before they receive treatment from a physician, hospital, or another healthcare provider. The assignment of benefits clause transfers a patient's right to collect benefits under his or her health policy to the provider. By signing the document, the patent agrees that payments will be made directly to the provider for the services rendered. The clause states that the patient is ultimately responsible for the charges if the insurer fails to pay.
Once the treatment has been performed, the provider submits the AOB along with a claim to the patient's health insurer. The insurer pays the provider for services rendered to the patient.
By clicking “Accept All Cookies”, you agree to the storing of cookies on your device to enhance site navigation, analyze site usage, and assist in our marketing efforts.
Assignment of Claim after a Loss: What Homeowners Should Know
Let’s start with the basics. If you, as a homeowner, sustain property damage or losses because of a covered event (like a fire, for example), you will need your home repaired. You choose a contractor or restoration company to do the work – but the check from the insurance company has not come through yet, and you need them to start right away. So, what can you do?
You can sign an “assignment of claim,” which assigns your rights (as the policyholder) to benefits and proceeds from the loss, to the company or contractors. In the simplest of terms, the assignment of claim allows your contractor to get paid directly from the insurance company.
What is the anti-transfer clause in insurance?
However, many contractors and purchasers of the damaged property have found themselves in a tight spot over the years, because of something called the anti-transfer clause. As explained on the Tennessee Insurance Litigation Blog , the anti-transfer clause usually reads something like this: “Your rights and duties under this policy may not be transferred without our written consent except in the case of death of an individual named insured.” Sometimes, the insurance company requires written consent before an assignment of claim can be made.
This clause routinely allows insurers to deny payments to contractors – but it shouldn’t, when an assignment of claim is made post-loss.
What’s the difference between pre-loss vs. post-loss assignments?
The Courts of Tennessee have routinely ruled on behalf of contractors and purchasers who were assigned the claim after the loss occurred. That is because the original assignee – the homeowner – was approved by the insurance company in the first place, and because the damage occurred regardless. There was no additional risk for the insurance company. Therefore, even if the contractor has a long and storied history of rule-breaking (or even criminal activity), the homeowner can assign the claim however he or she chooses; after all, the loss already happened.
Where insurance companies can (and do) have a leg up is for pre-loss assignments. The insurance company underwrote the risk on Bob and Jane Homeowner because it felt confident enough to do so. Bob and Jane cannot assign their policy to another person without the approval of the insurer, even when no loss has occurred.
Even if there is an anti-transfer clause in your policy, the chances are very good that a post-loss assignment cannot be legally denied by your insurer. If it is, seek out an experienced insurance dispute lawyer to help you argue the denial.
One last note for Tennessee policyholders
In some cases, the insurance company may decide that the amount of your loss is worth less than the cost of the renovations for which the contractor is charging. If this happens, you could be on the hook for the remainder of the costs, depending, of course, on the language of the deal with your contractor.
Because of this risk, it’s wise to contact an attorney before making any decisions. Get informed about your rights from the start, and let your lawyer address any potential hiccups along the way. If your insurer lowballs your claim, your attorney can handle the dispute , to ensure that you are compensated fairly.
At McWherter Scott & Bobbitt, we have spent years fighting against unfair insurance claims policies in Tennessee and Mississippi. Let Brandon McWherter , Jonathan Bobbitt and Clint Scott put their knowledge and experience to work for you. Please call 731-664-1340 or fill out our contact form . We maintain offices in Nashville, Chattanooga, Memphis, Jackson and Knoxville.
Brandon McWherter has dedicated his practice to assisting insurance policyholders with their claims against insurance companies, including claims for bad faith. He is licensed in Tennessee, Arkansas, and Mississippi. Learn More
- Practical Law
Assignment of a claim or cause of action
Practical law uk practice note 1-522-7861 (approx. 31 pages).
Ctrl + Alt + T to open/close
- 1 Scope of this note
- Effect of contractual prohibition on assignment
- 3 At what stage may a claim be assigned?
- 4 To whom can a cause of action be assigned?
- Legal assignment or equitable assignment?
- Requirements for a legal assignment
- Requirements for an equitable assignment
- Effect of consideration
- No loss occurring to assignee before assignment of claim
- General principles
- Exceptions to the rules on maintenance and champerty
- Security for costs
- Costs incurred by the assignor before the assignment
- Who is liable for costs awarded in favour of the defendant?
- Assignment of benefit and burden of solicitors' retainer
- When might an office-holder assign a claim?
- Who may assign a claim in insolvency?
- Claims capable of assignment by an office-holder
- Claims not capable of assignment by an office-holder
- Assignment of claims to an office-holder
- Potential liability of office-holder
- 10 Drafting an assignment of a cause of action
- Legal assignment
- Equitable assignment
- Assigning proceedings that have been commenced
- Counterclaims where a claim has been assigned
Handling Assignment of Benefit (“AOB”) Claims in the Wake of Hurricanes Irma and Harvey
Overview | Blog Posts | First-Party Coverage | Timothy Engelbrecht , T. Nicholas Goanos , L. Andrew Watson | Related | Print | Share
Timothy Engelbrecht
Partner | First-Party Coverage , Extra-Contractual 813-281-1900 [email protected]
T. Nicholas Goanos
Partner | Extra-Contractual , Arson & Fraud , Casualty Defense Litigation , Third-Party Coverage , First-Party Coverage 704-940-9811 [email protected]
L. Andrew Watson
Partner | Extra-Contractual , Casualty Defense Litigation , Arson & Fraud , Construction , First-Party Coverage , Third-Party Coverage 704-543-2321 [email protected]
September 12, 2017
Hurricanes Irma and Harvey have damaged large areas of Florida, Texas, and Louisiana, as well as brought heavy rain and wind to Georgia, North Carolina, and South Carolina. As insurers handle thousands of property damage claims in these areas, they will undoubtedly be presented with claims that have been assigned from insureds to damage-repair contractors. These are often referred to as assignments of benefits or “AOB” claims. This article explains briefly what an AOB claim is, how Florida, Texas, Louisiana, Georgia, North Carolina, and South Carolina address AOB claims, and the best practices for handling AOB claims.
WHAT IS AN AOB CLAIM?
The classic example of an AOB claim is the following: an insured suffers property damage and hires a repair contractor to repair that damage. The repair contractor requires the insured to execute a written document, usually entitled “Assignment of Insurance Benefits”, which says something to the effect of “for and in consideration of the contractor’s agreement to protect the property from further damage and/or make repairs, the insured assigns his/her/its insurance benefits to the contractor.” The contractor thereafter makes a claim directly to the insurer using the AOB.
HOW DOES FLORIDA, TEXAS, LOUISIANA, GEORGIA, NORTH CAROLINA, AND SOUTH CAROLINA ADDRESS AOB CLAIMS?
Florida has allowed AOB claims for over 100 years. Sec. First Ins. Co. v. State, Office of Ins. Regulation , 177 So. 3d 627, 628 (Fla. 1st DCA 2015). Post-loss property damage claims are freely assignable in Florida regardless of whether the insurer consents or not. Start to Finish Restoration, LLC v. Homeowners Choice Prop. & Cas. Ins. Co. , 192 So. 3d 1275, 1276 (Fla. 2d DCA 2016). An insurance policy that has a “non-assignment” clause only bars the assignment of the entire insurance policy, not an assignment of a post-loss insurance claim. Bioscience West, Inc. v. Gulfstream Prop. & Cas. Ins. Co. , 185 So. 3d 638, 640-41 (Fla. 2d DCA 2016).
Texas has adopted the opposite approach to AOBs. The general rule in Texas is that an insured cannot assign an insurance claim if the insurance policy has a non-assignment clause. ARM Props. Mgmt. Group v. RSUI Indem . Co., 642 F.Supp.2d 592, 609-10 (W.D. Tex. 2009) relying on Tex. Farmers Ins. Co. v. Gerdes , 880 S.W. 2d 215, 218 (Tex. App. 1994). This is true even if the non-assignment clause is general and broadly worded.
Louisiana takes a hybrid approach to AOBs. Louisiana allows an insurer to place a clause in an insurance policy that prohibits post-loss assignments. In re Katrina Canal Breaches Litig ., 63 So. 3d 955, 962-63 (La. 2011). However, in order for such a clause to be enforceable, the clause must clearly and unambiguously express that it applies to post-loss assignments. Id . The general and a broadly worded non-assignment clause that has traditionally appeared in most insurance policies is not sufficient. Id.
Georgia , much like many of the States above and across the Country, permits AOBs. See Santiago v. Safeway Ins. Co. , 196 Ga. App. 480, 481, 396 S.E.2d 506, 608 (App. Ct. 1990). Unlike North Carolina and South Carolina, which are discussed below, an assignee in Georgia may pursue his own extra-contractual claim only after first establishing a breach of the insurance policy. Southern Gen. Ins. Co. v. Holt , 262 Ga. 267, 416 S.E.2d 274, 276-77 (1992). Further, before pursuing an extra-contractual claim, an assignee (or insured) in Georgia must provide the insurer an opportunity to “cure” the alleged “bad faith”. See Ga. Code Ann. § 33-4-6.
Lastly, North Carolina and South Carolina also allow AOBs. In upholding the validity of an assignment, courts in these States have ruled not only that assignments of benefits are indeed valid, but also, that they are governed by each State’s general contract law. See e.g., Alaimo Family Chiropractic v. Allstate Ins. Co. , 155 N.C. App. 194, 197, 574 S.E.2d 496, 498 (App. Ct. 2002); Gray v. State Farm Auto. Ins. Co. , 327 S.C. 646, 491 S.E.2d 272 (App. Ct. 1997). The “rubber” meets the proverbial “road”, though, when an extra-contractual claim is alleged. In North Carolina and South Carolina, a plaintiff may assert an extra-contractual claim, even if the insurer has not breached the insurance policy. See Tadlock Painting Co. v. Maryland Cas. Co. , 322 S.C. 498, 473 S.E.2d 52 (1996); Kielbania v. Indian Harbor Ins. Co., 2012 WL 3957926 (M.D.N.C. 2012). However, an assignee is limited in the sense that it may pursue only his own extra-contractual claim, and not the assignors. Horton v. New S. Ins. Co. , 122 N.C. App. 265, 268, 468 S.E.2d 856, 858 (1996); Davis v. Liberty Mut. Ins. Co. , 2015 WL 6163243, at *4 (D.S.C. 2015).
WHAT ARE THE BEST PRACTICES FOR HANDLING AN AOB CLAIM?
First, as noted above, an adjuster needs to know if the state law where the AOB claim is being made allows for AOB claims.
Second, assuming the state allows for AOB claims, the adjuster needs to carefully read what the actual AOB document says. They are not all the same. Some AOBs assign the entire claim. Other AOBs only assign part of the claim. For example, imagine an insured’s property is damaged by water. The insured needs the water extracted and the structure rebuilt. An AOB might assign both the water extraction and the rebuild claim to a single contractor. Or, the insured might execute one AOB to a water extraction contractor and a separate AOB to a different rebuild contractor. Or, an insured might execute an AOB to a water extraction contractor and the insured will retain the remaining rights to make the rebuild claim. If the AOB is unclear what – exactly – is being assigned, it is important for the adjuster to speak with the insured and the contractor to ensure everyone is on the same page.
Third, the adjuster should speak to the insured to gather information necessary to understand and adjust the assigned claim. In Florida, an adjuster likely cannot require a contractor to perform the insurance policy’s post-loss conditions of giving documents, executing a sworn statement in proof of loss, or appearing for an examination under oath. Shaw v. State Farm Fire & Cas. Co., 37 So. 3d 329, 332-33 (Fla. 5th DCA 2010) disapproved on other grounds in Nunez v. Geico Gen. Ins. Co. , 117 So. 3d 388 (Fla. 2013). However, the insured is still responsible for fulfilling those conditions even with regard to the assigned claim. Id. The insured’s failure to do so may bar the assigned claim. Id.
Fourth, assuming payment will be made on the assigned claim, the adjuster should determine who will be listed on the settlement check. If there is a valid AOB, it may be improper to list the insured on the settlement check since the insured’s rights have been assigned to the contractor. Many AOBs will state that only the contractor be listed on the settlement check. However, it is good for an adjuster to confirm with the insured that the insured understands that he/she/it will not be listed on the settlement check. It is also important for the adjuster to correctly determine if a mortgagee needs to be listed on the settlement check. Situations vary depending on the nature of the work that the contractor is doing (damage prevention versus repair) and whether the work has been completed or is still to be done. The adjuster should discuss the situation with the insured, the contractor, and the mortgagee if the adjuster is at all unsure if the mortgagee needs to be on the settlement check.
Fifth, an adjuster should know whether an assigned claim can be resolved using the insurance policy’s appraisal provision. Appraisal can be an inexpensive and expedient way to resolve a claim. In Florida, an insurer usually can require a contractor with an assigned claim to go to appraisal if the insurance policy provides for the mandatory appraisal upon request. Certified Priority Restoration v. State Farm Florida Ins. Co ., 191 So. 3d 961, 962 (Fla. 4th DCA 2016).
Insurers will continue to be presented with AOB claims in the wake of Hurricanes Irma and Harvey. We have been helping insurers and adjusters navigate the unique issues associated with AOB claims for many years. Please contact us if you have any questions or need assistance.
For any further questions, please contact Timothy Engelbrecht, T. Nicholas Goanos, or L. Andrew Watson.
Keeping Everyone Honest with Technology
By Brian Hohman | Events
March 7, 2023
Hail Hath No Fury: An Interactive Workshop
By Ashley Mattingly | Events
March 2, 2023
Attorneys Vincent Fernandez and Shaheen Nouri Published in Claims Journal
By Vincent Fernandez , Shaheen Nouri | News
February 24, 2023
Flood vs. Wind Claims Following Hurricane Ian Webinar
By Matthew Lavisky | Events , Webinars
January 25, 2023
How to Calculate Depreciation – Replacement Cash Value vs. Actual Cash Value claims
By Thomas Keller | Events
January 19, 2023
IMAGES
VIDEO
COMMENTS
What is an Assignment of Benefits? In the context of insured property claims, an assignment of benefits (AOB) is an agreement between you and a contractor in which you give the contractor your right to insurance payments for a specific scope of work.
Assignment of benefits, widely referred to as AOB, is a contractual agreement signed by a policyholder, which enables a third party to file an insurance claim, make repair decisions, and...
The assignment of an insurance claim is an assignment of a contractual right or benefit. It is when one confers the financial payment or obligation of the insurer to another making them the beneficiary. Section 317 "Assignment of a Right" found in the Restatement of Contracts Law defines the assignment of a contractual right as follows.
The Insurance Policy Beneficiary will have to be identified for this assignment to function properly. This will be the Party who is designated on the concerned insurance policy as the Recipient of its benefits (i.e. payment). Produce this Beneficiary's full name and address. (3) Assuming Party.
An assignment of claims is a legal and financial process that allows one party to transfer or "assign" a claim to someone else, provided that the other party is in full knowledge of the assignment and agrees to it.
assign insurance claims and the practical considerations which may be relevant when doing so. For general details on contracts of insurance, see Practice Note: General principles of insurance contract law. Why might an office-holder assign an insurance claim An office-holder may seek to assign the benefit of an insurance claim for a number of ...
An assignment is a transfer of legal title, meaning that ownership of part of the insurance claim is being transferred to the contractor. This puts the contractor in "privity" (a legal relationship) with the insurer that allows the contractor to obtain remedies based on the insurance policy.
An outcome-based assignment is based on a systematic and highly granular analysis of closed claims to determine how each adjuster has performed on each individual coverage subsegment. For comparable claims, each adjuster is measured for expense control, accuracy of case reserves, average claim cost, audit outcomes, customer satisfaction / NPS ...
What is an assignment of benefits? An AOB is an agreement that transfers the insurance claims rights or benefits of the policy to a third party. An AOB gives the third party authority to file a claim, make repair decisions, and collect insurance payments without the involvement of the homeowner.
Insurance Claims As additional security for the payment and performance of the Obligations, the Grantor hereby assigns to the Secured Party any and all monies (including proceeds of insurance and refunds of unearned premiums) due or to become due under, and all other rights of the Grantor with respect to, any and all policies of insurance now or …
Warning: Assignments can be tricky. But, while insurance companies may attempt to disclaim coverage based upon any assignment of a policy or claim, in general, the assignment has to increase the carrier's risk in order to provide a valid basis for denial of a claim.
If your doctor, provider, or supplier doesn't accept assignment: You might have to pay the full amount at the time of service. They should submit a claim to Medicare for any Medicare-covered services they give you, and they can't charge you for submitting a claim. If they refuse to submit a Medicare claim, you can submit your own claim to ...
An assignment of benefits is a contract that lets a service provider bill your insurance company directly. These agreements are often used in industries like healthcare and home repair....
Assignment of insurance policies and claims by Practical Law Financial Institutions An overview of the legal principles that apply when assigning an insurance policy or the right to receive the insurance monies due under the policy to a third party.
An assignment of benefits, or AOB, is an agreement to transfer insurance claim rights to a third party. It gives the assignee authority to file and negotiate a claim directly with the insurance company, without involvement from the property owner.
Insurance may be a source of recovery against defendants with limited assets. Even when faced with a likely judgment-proof defendant, claimants should consider the defendant's insurance policy as a potential source of recovery. Obtaining an assignment of insurance rights may be a way to avoid costly and burdensome litigation.
Assignment of Benefits. Medicare assignment is an agreement between Medicare and medical providers (doctors, hospitals, medical equipment suppliers, etc.) in which the provider agrees to accept Medicare's fee schedule as payment in full when Medicare patients are treated. This article will explain how Medicare assignment works, and what you ...
Assignment of Claims. Although we may have no obligation to do so, if we credit your account in relation to your claim against a third party such as a merchant, you are automatically deemed to have assigned and transferred to us any rights and claims ( excluding tort claims) against any third party for the amount we credited to your account.
With specialist adjusters, experienced decision makers and a global network of claims experts, we offer unmatched service that puts your needs at the heart of the claims process. But our proactive partnership means we're working with you long before the claim—identifying emerging risks and trends to help you avoid threats, manage exposures ...
An Assignment of Benefits form, also known as an AOB, is a document that transfers the policyholder's rights to a third-party such as a construction manager or contractor. Once the AOB is signed, the third party has the authority to file claims, collect payouts, and make repair decisions without involving the policyholder.
Make sure you have a clear understanding of your policy and what you should expect during the claims process. Don't sign an AOB until you can weigh the risks and benefits. Always keep an eye out for AOB clauses on any document from a third-party vendor to make sure you don't unknowingly sign away your rights. Fortunately, you don't have to use ...
An anti-assignment clause is intended to prevent the insurer from unwittingly assuming risks it never intended to take on. Commercial insurers review business insurance applicants carefully. Before they issue policies, underwriters consider the knowledge and experience of a company's owners and managerial staff. If a business is sold to someone else, the new owners may not be as skilled or ...
At McWherter Scott & Bobbitt, we have spent years fighting against unfair insurance claims policies in Tennessee and Mississippi. Let Brandon McWherter , Jonathan Bobbitt and Clint Scott put their knowledge and experience to work for you. Please call 731-664-1340 or fill out our contact form. We maintain offices in Nashville, Chattanooga ...
Assignment of a claim or cause of action by Adam Deacock, Radcliffe Chambers This note explains how a claim or cause of action may be assigned, whether by legal assignment or equitable assignment. It sets out the situations in which an assignment may be effected, including assignment in the context of an administration, liquidation or bankruptcy.
This article explains briefly what an AOB claim is, how Florida, Texas, Louisiana, Georgia, North Carolina, and South Carolina address AOB claims, and the best practices for handling AOB claims.